U.K. Firms Looking Across the Pond Risk Entering No-Man's Land

Lost in a maze

It doesn’t take a genius to work out that there is an easier way for a law firm to operate internationally than by going through a complex merger.

Allen & Overy’s protracted talks with O’Melveny & Myers are a good example of how long it can take to agree to the details of a large-scale tie-up. That is, if it happens at all. And things are rarely straightforward afterward either. One year on from its trans-Atlantic merger, Bryan Cave Leighton Paisner’s management believes its 1 percent rise in revenue and 5 percent rise in profits were “great” results given the “distractions” involved.

So why not have a less formal relationship that offers many of the benefits with none of the drawbacks? The proposition sounds compelling, and more of these arrangements have emerged since the start of the year.

Taylor Wessing of the U.K. entered into an agreement to work more closely with U.S. giant Wilson Sonsini Goodrich & Rosati. The pair will work together on technology and life sciences deals and will jointly pitch to clients. U.K. firm RPC also established an alliance to act and pitch alongside U.S. firm Hinshaw & Culbertson when dealing with insurance clients.

Meanwhile, top-tier duo Slaughter and May and Cravath, Swaine & Moore, which have long had a referral relationship, have produced their first joint guidance note. It’s just some basic collaboration offering advice on blockchain technology, but given that the firms involved are such traditional partnerships, it has been seen as the clearest indication yet of deepening bonds.

On the face of it, all three of these tie-ups look pretty good for the U.K. firms involved.

For a start, their reputations will benefit. Taylor Wessing may be no minnow, but it cannot boast a client base on the same level as Wilson Sonsini, which is known for advising the likes of Google, Twitter and Tesla.

The agreements could be seen as defensive maneuvers by the U.K. firms after their rivals have made progress on the other side of the Atlantic. RPC, for example, has insurance adviser rivals that include Clyde & Co, which now has nine offices in the United States, and HFW, which has agreed to mergers that give it a relatively large presence here.

The firms will also know that any referral work that comes through the arrangement is more likely to come from the U.S. to the U.K. rather than the other way around.

But that is also part of the problem with such arrangements for the U.K. firms involved. There are just 26 firms in the U.K. with revenues of more than £100 million, or $132 million, that do not have trans-Atlantic capability, according to ALM Intelligence database Legal Compass. In the U.S. there are more than 100 in the same bracket. Combine this with the fact that U.S. GDP is more than seven times the size of the U.K.’s and it is clear the direction of referrals is basically one-way—and that independent U.K. firms benefit the most.

A tie-up in an important practice area means U.K. firms are essentially limiting their supply of referrals from the world’s largest legal market to just one firm. And they’re not even getting the financial and marketing benefits that come with a merger. In a sense, it’s the worst of both worlds.

The U.S. firms won’t mind. They are getting a strong U.K. practice to help on pitches and are ensuring that they will never have their preferred relationship firm taken away by a rival on a given deal. Although U.K. firms would argue the alliances are not exclusive, the association with a specific outfit will almost certainly affect the referral work they might otherwise have received.

Firms in the U.K. may start to find themselves in an awkward no-man’s land where they have neither a marriage partner nor the benefits of remaining single.

Email: phodkinson@alm.com