Editor's letter: To merge or not to merge?

The recent news that 91-year-old music retailer HMV has gone under administration because it did not adapt with the times will no doubt raise questions as to whether law firms that do not update their business models could face a similar fate.

A recent Acritas survey of general counsel found that clients increasingly favour law firms that have invested in international growth. Many law firms appear to have reached similar conclusions and have sought out mergers to increase their geographic presence.

Among the firms that have either confirmed or undertaken mergers in the past few months are: Herbert Smith and Freehills; SNR Denton, Salans and Fraser Milner Casgrain; and Norton Rose and Fulbright & Jaworski.

For each of these firms, the merger forms part of a strategic plan to build up their international capabilities, their key industry sectors and, of course, their revenues.

As a result of undergoing five mergers in five years, Norton Rose will have ?increased the group’s revenues to around US$1.9bn (£1.19bn) this year, a growth ?of 277 per cent from 2009.

Dentons, which reported revenues of £168m prior to its 2010 merger with Sonnenschein Nath & Rosenthal, will have boosted its combined revenues by 386 per ?cent to about $1.3bn following its latest mergers.

Meanwhile, Herbert Smith, which recently completed the first merger in its 130-year history, increased its revenues by 74 per cent to around $1.35bn by uniting with Asia-Pacific firm Freehills. Joint CEO David Willis has noted that further international growth ?can be expected from the combined firm in the near future.

The latter firm’s relative late entry to the merger game suggests that there is still time for law firms to undergo a radical shift in direction and to become new top-15 global firms.

However, a merger clearly isn’t for every firm and certainly shouldn’t be rushed ?into because of anxiety about being left out. The merger integration process will be ?difficult enough without adding to it doubts as to whether the merger was in either firm’s best interests.

It is of course possible for law firms to represent international clients without undergoing mergers. But, to avoid a fate similar to HMV’s, such firms will need to be ?bold, disruptive and innovative in their approach to client services to ensure they thrive ?as the global legal market is reshaped.

Until next time,

Manju Manglani, Editor

Managing Partner