© 2012 The Texas Lawbook.
By Mark Curriden
Senior Writer for The Texas Lawbook
Circle the Texas wagons. The British are coming!
More than a dozen national and global law firms are quietly knocking on the doors of law firm leaders in Dallas and Houston in an effort to break into the Texas legal market by merging with large and medium-sized firms in Dallas and Houston.
Leaders at half of the 12 largest Texas-based law firms confirmed in interviews with The Texas Lawbook that they have been approached during the past couple months by firms in both the US and London about a possible marriage.
But managing partners at the large Texas firms say that the push by their counterparts in the UK to expand into the Lone Star State intensified this fall as Fulbright & Jaworski and Norton Rose negotiated their proposed joint venture.
“Definitely, international firms are trolling around Texas right now,” adds Winstead Chairman and CEO Kevin Sullivan. “We get calls all the time, probably four or five calls from non-US firms in the past few months, but we are definitely in the ‘no’ category.”
Haynes and Boone Managing Partner Terry Conner, who has received several recent calls from global firms about merging, says the London firms that have significant energy and financial sector practices see Texas as a prime opportunity to enter the US market.
“There is certainly a lot of interest out there to do these kinds of mergers, but there are also significant issues to overcome,” says Conner. “We are always flattered to get their calls and compare notes, but we are happy where we are.”
During the past several years, more than two-dozen law firms based across the country have opened outposts in Texas.
Fifty-three of the 100 largest law firms in the US now have an office in Texas, which is nearly double the number only a dozen years ago.
Legal industry analysts say that a handful of major US firms have strategically targeted Texas as part of their expansion efforts. Those firms include Pittsburgh-based Reed Smith, which has 1,600 lawyers in 23 cities; Chicago-based Kirkland & Ellis, which has 14 offices and 1,400 lawyers; and New York-based White & Case, which has more than 2,000 lawyers in 38 cities.
The problem is that national law firms face significant obstacles merging with large established Texas practices, including client conflicts and the fact that most of the Texas firms have significantly lower profits-per-partner.
By contrast, most London firms don’t have US practices and thus don’t have as many client conflicts. Those same UK firms also have experienced a decline in profits per partner, making them more willing to merge their firms or combine the two firms using the Swiss Verein business structure, which allows each to operate as a separate corporation for financial purposes. Fulbright and Norton Rose are going to the Swiss Verein route.
Only two of London’s 15 biggest firms – DLA Piper and Hogan & Lovells – have offices in Texas. Norton Rose would be the third with its marriage to Fulbright. But Texas law firm leaders say that they have been approached by at least four UK firms about possible mergers or joint ventures just in the past couple months.
“There are at least a dozen national and global firms that actively have their eyes set on moving into Texas,” says Ward Bower, a legal consultant with Altman Weil.
“Every Texas law firm of any size, especially those with a strong energy practice, is getting calls at least once a month about a potential merger,” says Bower. “If they say they are not, they are probably lying.”
Bower and other industry analysts say that it is highly unlikely that Texas’ two other mega-law firms, Baker Botts and Vinson & Elkins, will follow Fulbright’s lead in merging with a global firm for two basic reasons: they don’t have to and they don’t want to. Both firms have secured their positions in the energy and M&A practices and continue to see their revenues and profits grow.
“Aligning ourselves with another global firm, in our judgment, is not the key to remaining competitive,” says Mark Kelly, who is the chairman at V&E.
With Baker Botts and V&E unwilling to discuss a merger, the global firms with strong interests in the oil and gas sector have reduced their favorite targets to three Texas firms: Andrews & Kurth, Bracewell & Giuliani and Thompson & Knight.
Andrews and Bracewell declined to respond to inquiries about whether they have had merger negotiations with national or global firms. Legal industry insiders say that both firms offer great potential to would-be suitors and would not be surprised if Andrews or Bracewell are actively involved in merger discussions.
Locke Lord officials also declined to be interviewed for the article.
Thompson & Knight, which has an extraordinarily active energy practice even though the firm is less than half the size of Baker Botts or V&E, openly admits it has been in merger talks – most recently with Reed Smith.
“Since I became managing partner in February 2012, I have had discussions with several other law firm leaders as part of my continuing analysis of the current and future legal market,” says Emily Parker of T&K. “I plan to continue to evaluate opportunities to expand our practice, through both acquisitions and mergers.
“Based on both client input and our internal analysis, we have no pending plans for a merger or additional international offices,” she says. “However, we will continue to establish and expand offices in foreign and domestic locations where we can best serve our clients in a cost-effective manner and maintain a competitive advantage.”
Other firm leaders echo Parker’s comments.
“The Fulbright merger with Norton Rose is a big deal, but will not change our strategic plans for domestic or international growth or cause us to seek a similar merger,” says Conner with Haynes and Boone.
“That said, large Texas-headquartered law firms, including ours, clearly understand the importance of the growth of global business and so will continue to expand global capabilities,” he says. “Because full mergers are difficult to accomplish, this global expansion often includes opening new offices, or expanding existing offices, outside the U.S.; creating strategic alliances with non-US firms; and acquiring smaller firms in key global jurisdictions.”
The first step for Haynes and Boone, says Conner, is to attract in-bound business in Asia by possibly acquiring a small firm in China.
Two firms – Strasburger and Price and Winstead – contend they have no interest in going global.
“We are approached by US and non-US law firms about merging on a routine basis and I am sure that we will see additional mergers like the Fulbright – Norton Rose deal,” says Strasburger & Price Managing Partner Dan Butcher, who adds that the firm is not engaged in any merger discussions.
“But our strategy is to focus on middle market businesses and large companies that operate in Texas,” says Butcher. “We’ve decided we don’t need a footprint outside the US.”
Sullivan says that Winstead’s “super regional approach” still has “a lot of running room left” in its business model.
“Our rate structure allows our lawyers to pursue local work and that allows our lawyers to get involved in the community through our clients, which is very attractive to younger lawyers,” he says.
© 2012 The Texas Lawbook. Content of The Texas Lawbook is controlled and protected by specific licensing agreements with our subscribers and under federal copyright laws. Any distribution of this content without the consent of The Texas Lawbook is prohibited.