Herbert Smith Freehills (HSF) has made no secret of its ambition to develop within the US, and has lengthy been touted as a possible merger associate for Stateside companies. Even so, Monday’s information (11 November) that it’s intending to mix with New York’s Kramer Levin got here as a shock to some companions throughout the agency – not to mention the broader market.
Ought to the associate vote undergo early subsequent 12 months, the pair will unite in Could as Herbert Smith Freehills Kramer; a $2bn, 2,700-lawyer agency that may function as HSF Kramer within the US.
With US enlargement nonetheless a strategic precedence for a lot of UK companies, Authorized Enterprise spoke to senior figures available in the market to gauge opinions on the deserves of the deal and predictions on how the most recent transatlantic tie-up will play out.
Why Kramer Levin?
HSF has had a disputes-focused base in New York since 2012, launched on the again of a sequence of hires from legacy Chadbourne & Parke, earlier than that agency’s merger with Norton Rose. The workplace now has round 50 attorneys, together with 17 companions, nearly all of which give attention to disputes.
The Kramer Levin deal will considerably broaden HSF’s US presence, including new places of work in Washington DC and Silicon Valley, in addition to some 300 attorneys in New York.
Consequently, the noises from inside HSF are largely constructive up to now, with one associate telling Authorized Enterprise: ‘The US is likely one of the most vital authorized markets on the earth in the present day, and we’ve been exploring methods to attain larger scale there for a while. It has been a key precedence for us.’
‘This merger will allow us to supply broader international protection and transfer us nearer to our aim of changing into a really international, top-tier agency. That is precisely what our shoppers need – having a powerful US presence is essential.’
‘The associate buzz is basically constructive,’ one other HSF associate remarks, framing the merger as a logical subsequent step within the agency’s US technique. ‘We’ve been so open that we needed to do one thing within the States, and we’ve been fussy about getting an excellent match. Kramer are well-known in New York market and our New York workplace has an excellent relationship with them.’
Peer views
Snap response to the deal amongst companions at peer companies has been combined.
‘This can be a very good transfer,’ says one administration determine at a number one international agency, of HSF’s answer to plugging the hole in its US presence. ‘In case you take a look at the narrative over the previous three or 4 years, there’s been plenty of speak about US companies dominating the market and taking on others. Latest offers, nevertheless, present a brand new dynamic: worldwide companies are actually in a position to persuade US companies to completely merge. It’s a really promising shift.’
Others, nevertheless, level out that given HSF’s dimension, they’d have anticipated a tie-up with a bigger agency, regardless of the inevitable challenges such a deal would have introduced.
‘I had suspected HSF would have ended up with a much bigger agency within the US, however availability doubtless performed an enormous position on this,’ stated one London managing associate. ‘Many US companies are powering forward, so there’s solely a sure kind of agency open to this sort of association.’
One other legislation agency chief echoed this view: ‘If they’d approached a way more worthwhile agency, there would have been little incentive for the US agency to interact. That they had no selection however to merge with a agency that wishes to globalise, moderately than simply specializing in profitability.’
Placing the doubts extra bluntly, one sourced joked: ‘One associate at HSF stated they’d replace me as soon as they’d Googled the agency’. (For the total lowdown on the US agency, see: Attending to know Kramer Levin – a information to HSF’s merger associate)
The income puzzle
Whereas in earlier years, many transatlantic offers adopted the verein mannequin, permitting them to dodge the challenges of mixing income, HSF and Kramer intend to have a single international revenue pool from day one, following within the footsteps of different current transatlantic tie-ups similar to A&O Shearman and Bryan Cave Leighton Paisner.
Previous reluctance to financially combine was usually all the way down to the upper associate income at US companies, and certainly Kramer Levin is extra worthwhile than HSF, with 2023 PEP of $2.41m (£1.87m), in comparison with HSF’s equal determine of £1.315m.
‘It’s well-known that producing income within the US is mostly simpler than in Europe or areas like Australia,’ notes one supply. ‘In previous mergers, companies usually aimed for related profitability ranges to simplify integration. It signifies that, when a US agency merges with a UK agency of equal profitability, the US agency is commonly perceived because the ‘inferior’ associate outdoors the US.’
The choice to push forward with monetary integration regardless of a distinction in PEP marks a turning level in how UK and US companies are prepared to strategy mergers, in accordance with companions .
‘This shift proves that some US companies are prepared to look past short-term profitability and undertake a extra international, entrepreneurial mindset, which has historically been tough within the US market,’ one associate observes.
One key query is the extent to which HSF’s present US referral relationships can be affected by the deal. One former HSF associate instructed that the Kramer merger might minimise disruption to present relationships with bigger US companies.
‘By merging with a smaller agency, they might be making an attempt to keep away from stepping on the toes of the larger companies they depend on for referrals,’ the associate defined.
Nevertheless, others doubt this speculation, with one legislation agency chief describing an affect on US referrals as ‘unavoidable’. ‘It will inevitably have an effect. That stated, it now has a US base from which it could possibly broaden, positioning itself as probably the most built-in, actually international companies. This transfer serves as a wake-up name to US companions who could also be resisting integration for the sake of income. It highlights the urgency of pursuing extra progressive methods.’
Combining cultures
As with all main merger, the success of the deal will rely on how successfully each companies combine cultures and align methods. ‘They’ve plenty of work forward of them—notably round attracting shoppers and making a stable enterprise rationale for why shoppers ought to have interaction with them,’ says one London managing associate.
One managing associate with expertise in previous transatlantic mergers notes that it will take ‘effort and time’. ‘They’ll want to make sure each companies align culturally, that their methods mesh, and that the mixing course of works easily.’
Sceptics of the deal level to the distinction between the 2 companies as a possible drawback. ‘They’re like oil and water – they’re so completely different,’ one supply bluntly remarks. ‘HSF is international, whereas Kramer Levin has a powerful give attention to high-end personal fairness shoppers. Can they actually leverage the synergies they consider are there?’
Nevertheless, that disparity can also be cited as a possible constructive by one other recruiter. They famous that HSF being ‘the senior associate’ within the merger, as the larger agency and with its leaders set to retain their positions within the merged agency, means it might keep away from ‘the painful integration points we’ve seen with different transatlantic mergers.’
What subsequent?
With the deal following sizzling on the heels of the A&O Shearman merger, consideration will inevitably give attention to whether or not different related tie-ups will comply with – and whether or not HSF’s decisiveness has handed it a head begin on opponents.
Based on one recruiter, the deal provides HSF ‘a definite benefit’. ‘Individuals will now be companies like Simmons & Simmons and Ashurst, who haven’t but made related strikes,’ he explains.
The deal might even have a knock-on impact of encouraging different comparable US-UK tie-ups involving companies of differing scales. ‘This might really make it simpler for different worldwide companies to barter full mergers with mid-sized US companies, one thing that will have been a lot more durable even 5 years in the past,’ in accordance with one legislation agency chief. ‘Bigger US companies may begin in search of merger candidates as nicely, realising that ready might not be of their finest curiosity.’
One other associate at prime 20 international agency notes that the merger has implications past simply HSF. ‘For companies which might be international however not totally built-in, this creates a problem. An built-in agency is mostly extra environment friendly, and now, with HSF’s instance, these semi-integrated companies aren’t simply lagging behind in effectivity – they’re not distinctive of their international presence both.’
anna.huntley@legalease.co.uk
With further reporting from Tom Cox and Elisha Juttla
