Lawyers have contradictory ideas about US mergers

Considering how much they like to talk about globalisation, lawyers have some contradictory ideas regarding the concept.

Take this week's Big Question poll on transatlantic mergers, which finds a clear – if not overwhelming – consensus that there is a need for consolidation in the legal industry. There is also a feeling that the newly-confirmed merger between Denton Wilde Sapte and Sonnenschein Nath & Rosenthal will create a stronger proposition for large clients. In fact, three out of four respondents believe the deal would, to some extent, create a stronger platform for clients compared to the legacy practices in isolation.

On one level you could argue that such sentiments should make the merger a no-brainer, a deal that scores of rivals would want to quickly emulate. Would you want to stay as a mid-tier practice going nowhere when you could become a larger player in a global market with a much stronger story to tell bluechip clients?

Yet the same group of respondents, when asked if the deal will be good for Dentons and Sonnenschein, are far less committal, with barely a quarter viewing it in an immediately positive light. On one hand the legal profession believes that clients and market forces are pushing towards cross-border consolidation, and on the other the fear of creating a larger 'second rate' practice looms large. Contradictory once again. If you are a 'second rate' practice, or 'mid-tier' as it tends to be called in polite conversation, there will never be a first rate deal on the table. Work hard for years and get more than your fair share of luck and the resulting merger may, down the line, give you a shot at first tier, but that's the best you can ever expect.

So why does the spectre of the second rate merger hold such sway? By definition, very few firms in any market or industry can be top tier, so the UK has dozens of 'second rate' law firms. The question such firms should be asking themselves is how they can take their business forward, not discarding options because they won't make them Davis Polk within the decade.

As Legal Week argued last year, the profession has also become rather too hung up on the issue of full financial integration. The vast majority of respondents felt mergers that maintain separate profit centres aren't mergers at all. That's surely an overstatement. Financial integration does matter a lot in any merger and sacrificing it to secure a deal is not a decision to be taken lightly, but it is not the absolute be-all and end-all. There are many excellent reasons not to pursue a US merger. A number of UK firms have held off cross-border consolidation for pretty poor ones.

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