In the last financial year, a staggering 1.48bn (or 54 per cent) of the combined income of the magic circle (Clifford Chance, Linklaters, Freshfields Bruck-haus Deringer and Allen & Overy) was generated outside the UK. A major chunk of this came from their European offices. Take Freshfields – two German mergers have propelled the firm to the top of the German league tables, and last year Germany brought in 162m in fees, second only to London.
Further down the list, firms such as Lovells, DLA and Simmons & Simmons have also made headway in Europe. Lovells, for example, made 60m in Germany last year.
For the rest, the question is how to enter Europe before its remaining independent firms are snapped up. Is it enough to rely on ‘best friend’ firms in Europe as top City firm Slaughter and May does? There are few firms that can afford to be as UK-focused as Slaughters. So should they pursue a string of engagements with Continental suitors with a view to full-on merger? Or avoid the nightmares of financial integration by entering exclusive associations?
A merger is likely to involve lengthy negotiations to tackle issues such as different profit levels and working practices, but if successful a merger will produce lucrative work flows and a powerful selling point to clients. Alliances and associations are far more vulnerable to breaking down, but offer the chance to build up referrals without the costs of integration.
Mid-sized City firm Taylor Joynson Garrett took the plunge last year by merging with Germany’s Wessing, creating Taylor Wessing. It is now gunning for a Paris merger.
Birmingham heavyweight Wragge & Co has opted for the other route. Last year, it signed up to an exclusive association with German firm Graf von Westphalen Bappert & Modest. Neither side wants to merge. For Graf, the Wragges deal is a second attempt at a UK link. Its alliance with Osborne Clarke fell apart largely because the UK firm wanted a quicker pace of integration. Osborne Clarke responded by poaching seven partners from Graf to set up its own Cologne office.
CMS Cameron McKenna is also on the alliance route. Its network has its own administrative structure and has seven members. But it is moving towards fuller integration, and merger has not been ruled out.
There’s also the option of setting up offices under your own UK brand by cherry-picking talent from local law firms. Norton Rose did just this in Amsterdam last year after its old Dutch ally Houthoff Buruma decided to remain independent. Houthoff’s managing partner promptly left and helped found a new office for Norton Rose.
But even the most experienced Continental operators have seen their strategies come unstuck. Clifford Chance merged with Italy’s Grimaldi e Associati in 2000, but only after guaranteeing extra money for a handful of top partners for a fixed period. But tensions rose over this issue and the reluctance of Grimaldi and others to adopt the firm’s management structures. In a serious blow to CC’s Italian M&A practice, Grimaldi, four other partners and 26 associates left last year to set up on their own.
So, when you pack your bags for that secondment, just spare a quick thought for the sweat and tears that have gone into securing that vital entry into Europe.