October 8, 2009 11:44 AM

What a Hogan/Lovells Merger Would Mean

Posted by Aric Press

If Hogan & Hartson, the Washington giant, and Lovells, the most global of the leading U.K. firms, consummate their merger talks, the new entity has the potential for a name out of Harry Potter--Hogells--and a chance to remake a corner of the Big Law marketplace. It would be the first major transatlantic merger of globally oriented equals. It would be the first transatlantic deal that would be built, in significant part, on the strength of its combined litigation practices. It would be the first deal of its sort that didn't pretend to offer entrée into the New York capital markets. And it would be a sign that while the Magic Circle and most financially elite New York firms continue to insist on their independent futures, firms just one step behind can see a future where a combination is greater than the sum of their parts.

Assuming they merge as one partnership, the new entity would immediately become one of the ten largest firms in the world, both in terms of head count and revenue. It would offer remarkable global reach with roughly 1,400 lawyers based outside the two firms' historic home regions--the seventh largest contingent of overseas lawyers in our Global 100. In one stroke, Hogells would be bigger abroad than White & Case, the globally oriented giant that has spent most of a century building its worldwide network.

The new firm would be in an enviable position, but one that would not automatically catapult it out of its relative position. Based on past performance, unless the merger allowed the firm to move up the client food chain or sharply improve its margins, it would rank with Clifford Chance and White & Case, a long stride behind the most financially successful firms, but many levels ahead of most of the pack.

A review of our Global Leader Board chart makes the point. For all the undifferentiated talk about global strategies and reach, it turns out that the global legal market place is a highly stratified region. The Leader Board shows the results for the 47 firms on our Global 100--the top grossing firms in the world--that have at least ten percent of their lawyers working outside their home countries. By itself, that 47 is a surprising number. Essentially only four dozen megafirms are competing at any serious level on the global stage. Every firm of any consequence has global and/or transnational clients, of course, but no matter what their Web sites may say, the principal business of the other firms is domestic. (Even for many of these 47, the principal business is at home as well.)

The size segments on the Leader Board are instructive. Within each, firms fall into a top, middle, and bottom tier in terms of financial results. For example, the ten firms with between 30 and 45 percent of their lawyers abroad simply aren't in the same business, even though they deploy similar percentages of lawyers abroad. That market segment runs from Shearman & Sterling's $1 million revenue per lawyer to CMS Cameron's $565,000. In terms of profits per partner, the spread is even more dramatic. Cleary Gottlieb had PPP of $2.4 million last year; Squire Sanders with roughly the same number of lawyers abroad showed PPP of $785,000. The clients, the services, and the fees were all different. As were the profits.

Hogells would start life with real advantages, with powerful government, regulatory, and litigation practices around the world. These would have critical mass: a quick count yields a projected 90 partners in Germany, 20 in China, ten in Moscow, eight in the Emirates.

The challenge would be the same as in any merger, only larger: taking this mass and making it one--and using the new entity to leverage further up the market. All while the whole world is watching.

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