January 17, 2012 7:35 PM

Urge to Merge Continues: McKenna Long, Herbert Smith Eye New Nuptials

Posted by Brian Baxter

On the heels of reports earlier this month that the surge in law firm mergers that marked 2011 would continue in 2012, further evidence suggests that tie-up talks are indeed slowly returning to prerecession levels.

Exhibit A: Am Law 100 firm McKenna Long & Aldridge announced Tuesday that it will merge on March 1 with Am Law 200 shop Luce, Forward, Hamilton & Scripps, creating a 600-lawyer firm with offices in 13 cities, according to sibling publication the Daily Report in Atlanta.

The Am Law Daily reported in November on the two firms' discussions about joining forces. Noting that Luce Forward was expecting to see revenues drop in 2011 because of the real estate downturn, sibling publication The Recorder confirmed that talks between the two firms were in fact proceeding. Luce Forward had previously held unsuccessful discussions with Cozen O’Connor and Nixon Peabody.

The negotiations between McKenna Long and Luce Forward dragged into December as partners from the latter resisted deequitization and possible layoffs, according to a report by the Daily Journal in Los Angeles.

The Daily Journal reported last week that Edward “Pat” Swan, the partner-in-charge of Luce Forward's San Diego office and the head of the firm's white-collar defense practice, was leaving for Jones Day. Also leaving Luce Forward are IP practice group leader Callie Bjurstrom and partner Peter Hahn, both of whom are leaving the San Diego-based firm for Pillsbury Winthrop Shaw Pittman, according to a report late Tuesday by The Recorder.

Despite the turmoil, the Daily Report notes that McKenna Long remained steadfast in its desire to proceed with the merger as part of a long-term plan to expand its presence in the Golden State.

"We've been focused on growing in California for years," McKenna chairman Jeffrey Haidet told the Daily Report. "Even in a recession, it's obviously a huge economy."

The merger with 145-lawyer Luce Forward bolsters McKenna Long's bench strength in its San Diego, San Francisco, and Los Angeles offices, as well as three additional offices in Southern California. While McKenna Long has traditionally focused on litigation and government contracts work on the West Coast, adding Luce Forward gives it an increased finance, corporate, and real estate practice capabilities.

"California won't come back without its real estate practice coming back," Haidet told the Daily Report, noting that McKenna Long will now have one of the state's largest real estate practices. "We can really distinguish ourselves in that regard."

According to the most recent Am Law 100 financial data, 425-lawyer McKenna Long saw gross revenues rise 2.4 percent to $276.5 million in 2010, while the firm's profits per partner jumped 11.4 percent to $925,000. Am Law 200 data shows that Luce Forward's gross revenues rose 3.6 percent to $101.5 million in 2010, while profits per partner soared 33.7 percent to $675,000.

While McKenna Long and Luce Forward proceed with their planned merger, another potential merger looms in Australia.

British firm Herbert Smith is reportedly in tie-up talks with leading Australian firm Freehills, according to U.K. publication Legal Week. The firms are currently holding exploratory discussions with all options—including a full merger, Swiss verein, or joint venture agreement—under consideration.

The potential combination of the two firms is in line with last fall's report by The Am Law Daily that Australia and Canada would be the most fertile territory for large law firm mergers. A tie-up between Herbert Smith and Freehills would create a global giant with nearly 2,000 lawyers.

Freehills had gross revenues of $471 million and profits per partner of $970,000 in 2010, according to The American Lawyer's most recent Global 100 financial data. Herbert Smith's gross revenues in 2010 were $718.5 million; its profits per partner were $1.36 million.

While the Asian legal market has cooled, Australia, particularly the country's western boomtown of Perth, has been an attractive destination for international firms, according to sibling publication The Asian Lawyer. The current talks between Herbert Smith and Freehills come on the heels of other mergers involving firms Down Under.

Australia's Mallesons Stephen Jaques confirmed last month that it will merge with Chinese domestic firm King & Wood to form Asia-Pacific legal giant King & Wood Mallesons. In September, British firm Ashurst announced a joint venture deal with Aussie giant Blake Dawson under which the two will combine their Asian operations ahead of completing a full merger by 2014.

Magic Circle firm Clifford Chance expanded into Australia by picking up two smaller shops in Perth and Sydney almost a year ago. Allen & Overy, which raided yet another top Aussie firm, Clayton Utz, in 2010 for 17 partners in order to establish a presence in Oz, is now in discussions with leading Singapore firm Allen & Gledhill about a possible combination, according to our previous reports.

Further underscoring the Australian legal market's importance: DLA Piper's 2011 merger with Aussie alliance partner DLA Phillips Fox, which solidified its claim as the world's largest by attorney head count. Fellow megafirm Norton Rose, now the third-largest in Canada after a series of mergers north of the border, recently saw its revenues surge thanks in large part to its 2009 merger with Australia's Deacons.

Bloomberg reported earlier this month that Deacons’ Hong Kong arm, the oldest law firm in the city, plans to continue to remain independent as it expands in China.

In other recent law firm merger news...

—Greenberg Glusker Fields Claman & Machtinger has picked up half of Los Angeles rival Rutter Hobbs & Davidoff, according to The Recorder, which notes the latter will dissolve after being hit with a large malpractice verdict. The two firms had previously been in merger talks. A press release by Greenberg Glusker states that about 15 partners from Rutter Hobbs will join the firm. (Update: The Recorder reports that the move of at least half of those lawyers as hit a snag due to client conflicts.)

—The Recorder reports that Lim Ruger, a minority-owned firm based in L.A., will open an office in San Francisco by merging with four-lawyer local shop Wang & Chang. The combined 23-lawyer litigation and transactional boutique, which includes several Am Law 100 alums, will keep the Lim Ruger name.

—Two small Philadelphia-area firms, Sacks & Weston and Petrelli Law, according to sibling publication The Legal Intelligencer. The six-lawyer combined firm will be called Sacks, Weston & Petrelli.

—Canadian IP boutique Bereskin & Parr has picked up IP partner Donald MacOdrum from McMillan, only two weeks after merging with fellow boutique Cameron MacKendrick in Toronto. Also putting up a new shingle north of the border: HGR Graham Partners, a merger of two Ontario firms.

—London-based Macfarlanes has picked up specialist hedge fund firm D. Harris & Co. International (DHCI) and merged it with its private equity practice, according to Legal Week. DHCI founder Daniel Harris has taken a consultant role at Macfarlanes.

—DWF, another British firm that expanded into Newcastle earlier this month after completing a merger announced in November with local boutique Crutes, is reportedly looking at a similar combination with fellow U.K. firm Cobbetts. The merger talks between regional British firms comes as a PricewaterhouseCoopers report points to the likelihood of future law firm mergers in Scotland due do a dearth of legal work for large firms in the country.

 

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