All posts by Hanover Legal

The Next Trans-Atlantic Merger?

Clifford Chance Rogers & Wells, Hogan Lovells, Norton Rose Fulbright, Bryan Cave Leighton Paisner and Eversheds Sutherland did it. So can Allen & O’Melveny.

Of the few brave US firms that have bitten the bullet with a partner from across the pond, only one has maintained their cultural identity as half of a merger of equals. As to the others, most attorneys today have never even heard of Rogers & Wells, the once great Fulbright has been thoroughly digested by Norton Rose, and Eversheds views Sutherland as a curious outpost. The jury is still out on Bryan Cave Leighton Paisner, although we believe Bryan Cave stands an excellent chance at survival as it is more evenly matched with its counterpart and also has an easier name to remember.

The next transatlantic merger is a matter of time, and while their respective Chairmen continue to offer vociferous denials, Vegas has an Allen & Overy – O’Melveny tie up before the end of 2019 at better than even odds. But to the extent names matter – and they do – O’Melveny should be quivering to the alter because even if they manage to maintain cultural prowess with a firm three times their size, the new partnership will be perpetually known as “A&O” anyway.

In the meantime, we appreciate the good sense of major firm leaders to refrain from discussing their courtships and marital woes in public, as we have sufficient law firm dysfunction entertainment from our firebrand litigation boutiques and from time to time the megalomaniacs from whom they have managed to break away.

Be what may, we look forward to continuing on this journey with all of our attorney and law firm clients, and wish everyone smooth sailing during the second half of 2019!

Wishes and Predictions

While we are all relishing our last day of this holiday season and gearing up for 2019 and the inevitable challenges the new year will bring, we thought it may be worthwhile to offer a few predictions as to the landscape of BigLaw during the year to come:

  • At least one AmLaw 50 firm will dissolve or be acquired;
  • At least two AmLaw 100 firms will dissolve or be acquired;
  • There will be a record number of lateral partner moves among the AmLaw 100 firms;
  • There will be a record number of law firm mergers among the AmLaw 200 firms;
  • All but one of the current AmLaw 50 firms will post increased revenue over 2018;
  • 48 of the current AmLaw 50 firms will post increased profitability over 2018;
  • AmLaw 50 firms will see record numbers of partner departures leaving to join boutiques or start boutiques of their own;
  • No transatlantic merger of Global 50 firms will be consummated.

With those predictions on the table, we look forward to reviewing each of our major firms’ reports of their own 2018 performance and tracking their respective performances in 2019 — wishing all of them the best of luck as the gun goes off bright and early tomorrow morning and while we commence our own 19th year of offering support to their attorneys and managing partners as they face their inevitable challenges over the course of the upcoming twelve months!

Killing & Eating and its Ascent to the Summit

As we approach the midway point of calendar year 2018, we observe the New York Yankees of BigLaw, Kirkland & Ellis, acquiring Guillermo Stantons ad nauseaum in its quest to pull away from the rest of the world’s major league firms in the revenue rankings.  Clearly, K&E is not resting on its laurels in breaking the $3 billion barrier in gross revenue last year after increasing its bottom line to $3.165 billion from $2.65 the previous year, squeaking by now number two Latham in that category by $100 million.  See https://www.law.com/2018/03/22/what-is-the-new-normal-for-kirkland-ellis/

To fully appreciate K&E’s laser-focused quest to ascend to the top of the charts, one need only look at the pace at which K&E is achieving its record setting accomplishments, its 2017 gross revenue figure representing a more than 100 percent increase over its pre-recession total in 2007 and 19.4 percent increase from 2016.  But perhaps even more remarkably, K&E is simultaneously nearing the top of the BigLaw standings in profitability as well, reporting $4.7 million in profits per equity partner for number three in the nation in that category, topped only by Wachtell and Quinn Emanuel.  See https://www.law.com/americanlawyer/2018/03/21/kirkland-overtakes-latham-as-worlds-biggest-firm-by-revenue/.

K&E’s strategy essentially boils down to offering tremendous compensation packages to BigLaw’s heaviest power-hitting revenue producers in traditionally lucrative transactional areas like M&A, private equity and restructuring, in contrast to less dependable revenue flows from big-ticket litigation, the decrease in the firm’s percentage of litigators of over ten percent in the last ten years signalling that change in strategic focus.  See http://www.chicagobusiness.com/article/20180518/issue01/180519866/kirkland-ellis-reaches-the-top-as-it-focuses-on-corporate-work

K&E’s rise to the top has also been facilitated by the resistance of other major firms to change the way they compensate their partners, venerable firms like Cravath, Debevoise & Plimpton and London-based Freshfields maintaining their lockstep compensation structures and their gentility but at the cost of rendering their most productive partners easy prey for K&E, where gentility is generally anathema to the extent it may impede the latter’s ability to compete for revenue streams and maximize profits among their limited echelon of equity partners.  See https://www.thelawyer.com/issues/online-march-2016/partnership-prospects-at-kirkland-ellis/

Consequently, K&E has been able to lure perennial power-hitters seemingly at will, most recently signing litigator Sandra Goldstein from Cravath by reportedly offering her about $11 million for each of her first five years there – perhaps twice as much as she was earning at Cravath – plus a signing bonus.  See https://www.wsj.com/articles/m-a-litigator-sandra-goldstein-leaves-cravath-for-kirkland-ellis-1523663003, and see https://www.reuters.com/article/moves-kirklandells-goldstein/moves-cravath-ma-litigator-goldstein-leaves-for-kirkland-ellis-sources-idUSL1N1RQ28T.  Their acquisition of Goldstein came on the heels  of their acquisition from Cravath earlier this year of M&A superstar Eric Shiele, see https://www.reuters.com/article/kirklandellis-moves-schiele/moves-cravath-ma-lawyer-schiele-to-join-kirkland-ellis-sources-idUSL2N1PI027, who lateraled only about one month after Erica Berthou, formerly global head of Debevoise’s investment management and funds group, jumped aboard along with former Debevoise deputy corporate chair Jordan Murray.  See https://www.law.com/americanlawyer/sites/americanlawyer/2017/12/01/just-in-time-for-the-holidays-kirkland-recruits-another-rainmaker/.  That same month K&E landed private equity star David Higgins from Freshfields as well. See https://www.law.com/americanlawyer/sites/americanlawyer/2017/12/18/freshfields-private-equity-heavyweight-david-higgins-quits-to-join-kirkland-as-london-co-head/.  This no-holds-barred approach to compensation also allowed them to out-compete any venerable lockstep competitor in bidding for Robert Khuzami when he was transitioning from his position of SEC Director of Enforcement, according to public disclosure forms paying him $11.1 million from late 2016 to early 2018.  See https://biglawbusiness.com/government-disclosures-shed-light-on-big-law-salaries/. Other prominent examples of K&E’s successful talent-acquisition ventures include their 2016 luring of appellate superstars Paul Clement and Viet Dinh, while absorbing the rest of their elite 17-lawyer Washington, D.C. boutique as well.  See https://www.wsj.com/articles/kirkland-ellis-to-absorb-bancroft-1473711303.

K&E is working hard not only to win the race for highest revenue and profits per equity partner, but also to brace its attorneys for the rough and tumble emotional ride that goes hand in hand with billing the mountains of hours needed to generate the cash required to satisfy the compensation commitments extended to all these heavy hitters.  About two years ago the firm made headlines for implementing a yoga and meditation program to help their army of non-equity partners, counsel and associates maintain their health while working hard.  Here, for the equity ranks at least, the proof is in the eating of the pudding:  they are currently savoring a hearty 5.2 percent increase in revenue per lawyer to $1.58 million.  See https://www.law.com/americanlawyer/2018/03/21/kirkland-overtakes-latham-as-worlds-biggest-firm-by-revenue/.  See also https://blogs.wsj.com/law/2016/05/03/kirkland-ellis-lawyers-to-get-emotional-fitness-training/

In sum, in this era of free-agency, even leading partners at the elite lockstep firms are switching teams at rates never before seen in the history of BigLaw in order to maximize compensation.  While we have no concerns with respect to the ability of those elite lockstep firms to continue to thrive nonetheless in the short term, we expect to see more of those firms modifying their lockstep compensation systems in order to better fend off the attacks of the elite eat-what-you-kill firms on their rainmakers.  As to the rest of the BigLaw market, we expect to see continuing contraction at the rate of at least one major firm collapse every year and a half, while managing partners everywhere invest additional resources in eating heavy-hitters elsewhere and simultaneously protecting against the risk of losing their own to the increasingly predatory lateral market.

We at Hanover Legal remain on board consulting with managing partners and attorneys at all levels as to staying alive and thriving in this competitive and dynamic environment.