Mergers v Acquisitions

A few months ago I took a risk and suggested Herbert Smith Freehills would be wise to consider a merger with U.S. firm McGuireWoods. Its deal with New York-headquartered Kramer Levin instead is probably an even better outcome. But it’s hard to describe it as a merger of equals.

The legal industry—including the legal press—use the term ‘merger’ quite loosely. Sure, both sides are agreeing to join forces, but in the corporate world few would describe a $1.6 billion revenue business combining with a sub-$500 million business as a genuine merger. It’s more of an acquisition; the revenue ratio is 3.7 to 1.

That is even more than when Allen & Overy merged with Shearman & Sterling in May with a revenue ratio of 3.2 to 1. In A&O Shearman’s case this disparity became clear when it emerged that only candidates from Allen & Overy were in line for the top two positions in the firm, though the firm went to great lengths to ensure Shearman’s Adam Hakki also had a senior title.

The same thing is happening with HSF Kramer, with HSF’s Justin D’Agostino and Rebecca Maslen-Stannage set to retain their roles as the leaders of the combined firm and the Kramer Levin leaders taking senior roles on various executive teams.

In years gone by the logic had always been that firms should aim to link up with similar types of firms. Yet it is clear that these large-small deals are more straightforward to secure. When similar sized firms combine there is so much power play involved that it becomes much harder to agree on anything.