The end of merger talks between Orrick, Herrington & Sutcliffe and Pillsbury Winthrop Shaw Pittman over client conflicts and McKenna Long & Aldridge’s partners’ rejection of a tie-up with Dentons illustrate how complicated and volatile the merger process can be.
But despite the difficulties, “there are lots of breakfasts going on” in New York City, said Jon Lindsey, partner and recruiter at Major Lindsey & Africa.
Merging into New York remains a priority for many out-of-state firms. “A lot of our client law firms based outside of New York are always actively looking and interested,” Lindsey said, adding that any New York firm that is receptive to a merger is “very popular right now. There’s no shortage of suitors.”
One suitor is Patton Boggs, founded in Washington, D.C., which has a few more than 20 lawyers in New York. Patton is in preliminary talks with Locke Lord, which has deep roots in Texas and a 46-attorney New York office.
Patton is also seeking to merge with a New York-based firm, preferably one with 100 attorneys or under, said John Nonna, managing partner of the firm’s New York office.
After years of growing slowly through individual hires, Nonna said the firm has approached a few Manhattan firms with the goal of merging by the end of the first quarter of 2014.
The firm is also looking for lateral groups with portable books of business that collectively bring $3 to $5 million, he said.
“Any firm of international presence needs a robust New York office,” Nonna said. “Our office is relatively small and we need to grow and we are keeping our eyes open for both groups and a potential merger.”
There are no serious discussions yet with firms other than Locke Lord, he said. But talks with one New York-based firm are progressing, though Nonna declined to name the firm.
Patton is looking for a transactional practice that complements its private equity and international practices in other offices, Nonna said.
Compatible billing rates will be key. “If the business that a firm or lateral group had was low-rate business, like a substantial discount off what our normal rates are, that would never get to a next step,” he said.
Patton’s New York partners charge between $600 to $900 an hour, he said, and some smaller firms have similar rates.
Patton Boggs established a New York office in 2006 and has since encountered slow growth, focused on bringing on individual practitioners, “which I think is a very difficult way to grow,” Nonna said.
Finding partners with portable business is key. “Nobody is sure the business will move with the lateral. You have to evaluate whether lateral candidates you’re talking to have that client loyalty and trust,” he said.
David Greene, Locke Lord’s managing partner in New York, said in late November that while his firm and Patton had not yet signed a letter of intent, “they are conducting due diligence on a variety of fronts related to a possible merger.”
Greene said Locke Lord has had sustained growth in New York for several years “and we will continue with or without the merger.”
There were several tie-ups with New York firms in 2013. Philadelphia-based Ballard Spahr linked up with white-collar boutique Stillman & Friedman, and Chicago-founded Schiff Hardin brought on 11 lawyers from Mazur Carp & Rubin. London-based litigation boutique Hage Aaronson inked a deal with New York’s Gregory P. Joseph Law Offices, a firm founded in 2001 by former Fried, Frank, Harris, Shriver & Jacobson litigation head Gregory Joseph.
The trend toward globalization by clients is putting pressure on some firms to be in more places, said Scott Mollen, a partner at 160-attorney Herrick Feinstein who has counseled lateral partners.
“Some large clients prefer to limit the number of firms so it’s easier to coordinate certain types of matters that the client may have in Europe, Asia and the United States. Sometimes one firm, with the necessary expertise, has a significant office in each of these areas,” Mollen said.
But he said, “some general counsel also view a law firm with a strong office in New York with deep relevant expertise and local relationships as important.” Moreover, “not all offices of large law firms are equal,” Mollen said.
“A smaller firm with fewer locations such as at Herrick has the ability to carefully select which local firm would add substantial expertise and relationships in each part of the country and the world as co-counsel. Sometimes, ordering ‘a la carte’ may be better than a ‘package deal’,” Mollen said.
“Herrick along with a small number of other firms has preferred to remain independent,” Mollen said.
David Scherl, chairman and managing partner at 90-attorney Morrison Cohen, said his firm has been approached repeatedly by large out-of-state law firms over the past two decades.
“We’re not interested at all,” he said. While Morrison Cohen is always flattered to be considered as a merger partner by national firms, Scherl said, he sees downsides to merging, including pressure to raise hourly billing rates, less senior attorney client attention, cultural challenges and challenges arising from larger “management bureaucracies.”
Nonna said each set of merger talks is specific to the two firms involved, but since the collapse of Dewey & LeBoeuf, which was created by a merger, firms are being much more careful in due diligence.
“It’s the lesson learned from the Dewey merger,” said Nonna, a former Dewey partner.