CMS-Dundas and Wragges-LG unions receive less positive feedback, as partners predict wave of law firm combinations is set to continue. Pui-Guan Man reports

SJ Berwin's merger with King & Wood Mallesons (KWM) has been met with guarded optimism by law firm partners, who are more cynical about other recent high-profile tie-ups.

Legal Week's latest Big Question survey has found that nearly 50% of partners believe legacy SJ Berwin's merger with Asia-Pacific giant KWM, which went live last November, looks like a good deal, while a further 6% believe the tie-up will be game-changing. However, 44% of respondents have a 'negative' or 'very negative' view of the union.

Nearly half (46%) of partners see the KWM combination as being on a par with other sizeable international mergers in recent years, namely Norton Rose's tie-up with Texas firm Fulbright & Jaworski, which went live last June, US firm Hogan & Hartson's merger with City firm Lovells in 2010 and the three-way union between SNR Denton, Salans and Canada's Fraser Milner Casgrain last March forming Dentons.

Sixteen per cent of partners think the KWM merger is a better deal on balance, showing a lot of potential, with 1% of respondents believing the proposition has far more to offer. A third were harder to convince, feeling the tie-up had less or far less to offer than other international mergers to date.

"I suspect you've got to work quite hard in a verein structure to build a feeling of one brand," says Greenberg Traurig Maher London office chairman Paul Maher (pictured above). "I'm not saying that it can't be done, but it must be quite difficult. If you've got separate profit pools, then the motivations tend to go in one direction, so, unless you've got very clear mapped out procedures and agreements, individuals' inclination to share clients and relationships might be diminished."

A spate of deals

Following KWM's November tie-up, there has been a spate of merger activity over the last six months. CMS Cameron McKenna's merger with Scotland's Dundas & Wilson is set to go live on 1 May, the same day as Wragge & Co and Lawrence Graham are due to tie the knot. Meanwhile, last month Speechly Bircham and Charles Russell announced they are in talks over a potential tie-up to create a law firm with revenue of about £126.3m. 

In contrast to the KWM deal, partners are more sceptical about how these mergers will play out. Only 41% of partners think the merger between CMS and Dundas is a positive deal, with nearly 60% unconvinced that the deal adds much value to CMS's existing offering. 

Wragges' upcoming merger with LG received a slightly more positive reception, with just over a third (35%) saying it would propel both firms forward, and a further 11% feeling very positive about the combination as the firms were a good fit. Nonetheless, a majority of 53% describe the tie-up as a deal that does not 'solve much for either firm', with an additional 3% saying the deal is very negative and questioning the benefits of the merger for either side.

CMS managing partner Duncan Weston defended his firm's combination, saying: "To put our combination with Dundas in context, it is a logical and compelling way for us to build on our track record in finance and energy work in Scotland. 

"It was not so much a global or large-scale London merger as it was an opportunistic move for us to gain a large team of high-quality lawyers. Based on the feedback we have received from our clients and partners we get the sense that it has been a very positive move."

Several recent mergers have involved troubled firms tying up with larger practices. However, partners believe these types of deals do not necessarily represent good value for those involved. Fifty-seven per cent think that although such deals could solve problems they are also likely to create new complications, while an additional 8% believe they simply transfer one firm's burdens to another. 

But 35% disagree, anticipating that these types of deals have the potential to rescue struggling firms.

"It is well known that Dundas was renowned as a top-ranking firm in Scotland but went through difficult times in terms of profitability, despite having superb-quality lawyers," says CMS senior partner Penelope Warne. "Our global platform gives them the opportunity to go back to the glory days of their careers and back to being a profitable firm."

Mergers on the horizon

Partners predict that the spate of merger activity will continue at the same pace in the next six to 12 months, with 64% describing it as 'a sign of the times' while a further 35% say there are 'a few firms out there still looking to merge'. Only one partner believes that improving market conditions will mean struggling practices have less incentive to combine.

"I expect to see more mergers – the time is right," says Wragges' senior partner Quentin Poole. "People may have held off during the financial crisis because it was too risky but things are looking better now and there is a mood of consolidation in the market. I think the KWM-SJ Berwin merger was brave; it was a cultural leap and I take my hat off to them – as we all know the future is East."  

Simmons & Simmons senior partner Colin Passmore adds: "I think [the string of mergers] is likely to continue. Firms of a certain size are recognising they need scale, and while it might not necessarily be on a global scale they realise they need to do something radical to step up their practice. If their clients are global they will need scale to follow them in various markets."

Just under half (46%) of respondents say their firm would look to merge with a UK firm over the next year. Nearly a quarter (22%) of respondents expect their firm to contemplate a transatlantic tie-up in the same timeframe, while identical numbers hold the same opinion regarding an Asia-centric combination. 

"From our perspective it is no secret that we have to address the need for US law capability, but it is easier said than done," says Passmore. "There are instances where an absence of full-scale US law capability has held us back. A merger is something we would consider among many options – there are few things we would keep off our agenda."

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