Lawyers and experts across the industry have been digesting the news this morning of Herbert Smith Freehills' and New York-based Kramer Levin Naftalis & Frankel's decision to merge.

Law.com International broke the news yesterday of the expected formation of Herbert Smith Freehills Kramer, the latest mega-merger in law after Allen & Overy and Shearman & Sterling combined earlier this year.

Subject to an upcoming partner vote, the new $2 billion organisation will operate as a fully integrated law firm and, crucially, under a single global profit pool.

Lawyers, insiders and other experts discuss the significance of the combination; though the initial reaction is largely upbeat, questions focus on the motivation behind the move, the trend of market consolidation, and the complicated nature of transatlantic mergers.
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The 'Missing Piece'

For a firm that has been targeting the top 10 of the Global 200, HSF's decision to merge is uncomplicated.

HSF partners that commented for this piece are optimistic.

“It’s super exciting news,” one insider said. “The U.S. is the final piece of the puzzle for us. We have clients with needs in that area, and say what we want to be able to help them wherever they are in the world.”

Another partner had a similar view, describing it as “the one missing piece in our global connection".

“It'll be good to have that, and it's something that our clients have really been asking for, both here in Australia and overseas.”

A partner at a rival firm said that a merger was "a bit of a shortcut, but it's also more of a proven path— you’re taking out some of the uncertainty."

But the partner warned of the "culture integration problems" that mergers can throw up, "like the awkward barriers about partner and associate pay".

Indeed, how the two firms align their different pay structures will likely be a priority for the new leaders. The revenue per lawyer (RPL) numbers are substantially different. Kramer Levin’s RPL is $1.28 million, close to double that of HSF, which is just under $700,000.

Another partner also offered a more sober take.

“It'll be something that people will sort of process and and think about, but it's not the, you know, drop everything you're doing and scan the papers for the latest press article,” the partner said. “There's lots of hoops that will need to be jumped through.”

Another insider said that it would take them a while to "form their views" on it.

Siobhan Lewington, a partner at recruitment firm Macrae, said the merger seems to be "a disputes play", and that partners at both firms will be asking "how it works for your clients and what impact it will have on them—good or bad"

"Similarly, you’ll be assessing if your practice area will be of strategic interest to the merged entity."

Nevertheless, the sense across the market is that there is a need for a significant U.S. piece to succeed as a major global organisation.

Legal recruitment expert Chris Clark, director at Definitum Search, spoke of the importance of having a U.S. presence to succeed as a firm with large-scale aspirations.

He said the tie-up is "a very positive merger" that "gives the combined firm a truly global reach".

"Most of the top 30 U.K. firms either have or are considering U.S. mergers but deals collapse when firms profits are too far out of line. If [the combined firm] shares in one profit pool, it will be a very successful merger. It’s often the firms that merge in name only that don’t see the same level of success. Partners need to be motivated to make it work and financial motivation is often the biggest factor."
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'Can We Do it Too?'

The merger is yet more evidence of the growing appetite for transatlantic mergers, as law firms target profitability and wheel towards consolidation.

One partner at a top international firm said: the latest merger was "evidence of a continuing trend started by A&O shearman".

"Some are following a strategy of organic growth to establish U.S. substance whereas others are seeing strength in the merger route," they continued. "Obviously HSF chose to undertake an australian merger back in 2012; they were looking eastwards back then. But now they’ve realised you can't ignore the strength of the U.S. legal market. Without being curmudgeonly, I imagine a lot of firms will be looking at what to do next."

They added: "I suspect partners will start saying 'Look, Herbies have done it; are we in a position to do this too?'"

Christopher Niesche contributed to this story.