Two Worlds Collided – The Hogan & Hartson and Lovells Merger

There has been a flurry of merger activity lately. We've seen companies from across the pond joining with American corporations - soft drink manufacturers, chocolate and candy distributors, and even law firms. The Wall Street Journal has an interesting article about the possible merger of Hogan & Hartson with Lovells. The WSJ notes that there may be some cultural issues to resolve, specifically in how the firms compensate their partners.

Hogan & Hartson LLP, a powerful Washington law firm that was previously home to Supreme Court Chief Justice John Roberts, is on course to merge with Lovells LLP, one of Britain's largest and most prominent firms, according to people familiar with the matter.

If approved, the deal would create one of the world's largest law firms, with about 2,500 attorneys and $2 billion in annual revenue. It also would mark a rare combination of top-tier U.S. and British firms.

Though the merger talks could still fall apart, management committees for both firms will recommend the proposed deal to their respective partnerships, said people familiar with the matter. Both firms would need their partners' approval for a merger.

Industry experts say British law firms haven't become significant players in the U.S. market because trans-Atlantic differences in culture and compensation practices have made it hard for them to acquire leading American firms. But the management teams at Hogan and Lovells think they have a plan to overcome those obstacles, with Lovells likely moving toward a more-American approach to compensation.

The U.S. is "by far the largest legal market in the world," said law-firm consultant Peter Zeughauser, who is advising Lovells on the proposed combination. "This would enable Lovells to seriously penetrate the market in one fell swoop."

Lawyers said Hogan, in turn, would gain a greater presence in Europe, while both firms would extend their reach in Asia, an increasingly important market.

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But a potential challenge for the two firms, lawyers at other firms said, will be marrying their contrasting styles. Hogan is considered relatively hard charging, paying partners partly based on how much business they bring in. Lovells takes a different approach, compensating partners partly based on their seniority.

In a Hogan-Lovells deal, Lovells likely would rely more on business generation, among other factors, in compensating partners, according to Mr. Zeughauser, who was retained by the firm after the merger talks were under way. Hogan, lawyers say, does factor in other criteria in awarding pay, including whether partners are collegial and actively mentor junior lawyers.

Cultural and compensation differences have stood in the way in past trans-Atlantic mergers.

See the full article here.