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Strength not growth main results of international mergers

Both Dentons and Norton Rose’s Canadian offices see their combinations as successful.
|Written By Tali Folkins

When Montreal-based Ogilvy Renault LLP announced its plans to merge with U.K.-based Norton Rose in 2010, the company said its extended reach as part of a global giant would help it better serve its increasingly international clients. And in 2012, when Fraser Milner Casgrain LLP declared its intention to join with SNR Denton and Salans to create a new international giant, the firm said the move positioned it to capture both more inbound and outbound work.

Norton Rose Fulbright’s Andrew Fleming says Ogilvy Renault’s decision to merge is an ‘unqualified success.’

In both cases, the implication seemed to be that the moves were coming primarily out of a desire to take advantage of new growth opportunities.

Now, although the heads of the Canadian branches of both firms say they’re delighted with how the mergers have gone, the number of lawyers at each remains roughly unchanged — while industry watchers speculate that these and other high-profile mergers involving Canadian law firms were at least as much about keeping up in an industry undergoing dramatic transformation as much as they were about expansion.

Andrew Fleming, managing partner at Norton Rose Fulbright’s Toronto office, describes Ogilvy’s merger with Norton Rose as an “unqualified success.” The new economies of scale afforded by the merger have allowed it to explore new methods of delivery of legal services, he says. It has also meant improved management and has allowed it to offer its clients a broader range of services.

The merger, he says, “has given us the opportunity to say now, ‘I don’t want to compete for your Canadian business; I want to compete for your global business.’”

Canadian companies overseas, he says, can now be assured they’ll get the same level of service with Norton Rose Fulbright in other countries as they got with the former Ogilvy Renault in Canada.

The international expansion has not meant more lawyers at the new company’s Canadian offices, says Fleming.

Becoming part of a global giant has to some extent meant a balancing act — the Canadian offices are getting fewer references from overseas law firms, now wary of feeding work to an international competitor. On the other hand, more inbound work is coming in from Norton Rose’s international offices, he says.

After its first 100 days, Rob Seidel, Canada managing partner at DLA Piper, describes the implementation of the merger as a “smashing success.”

“It has exceeded our ‘high scenario’ both from the perspective of growth of inbound work, outbound work, and the integration of our lawyers across the DLA Global platform.”

The number of lawyers has grown to about 275 from about 260 at the pre-merger Davis LLP.

Dentons CEO for Canada, Chris Pinnington, says by the measures the combining companies had set themselves pre-merger, “the realization of the strategy through the creation of Dentons has been on all fronts a very great success.”

The new firm’s Canadian offices, he says, have been joined by a number of talented lawyers, including 46 from the now-defunct Heenan Blakie LLP. The Canadian unit has also benefitted from Dentons’ merger with U.S. firm Mckenna Long and Aldrich LLP, which enables it to better serve its U.S. clients here as well as Canadian clients operating stateside.

The firm’s rankings have been strong. In its first full year as a merged organization, there was “material improvement” in its revenue and profitability over the prior year, says Pinnington.

But like Norton Rose, Dentons’ Canadian offices are not really any bigger, he says.

“We’re roughly the same size, I think, in aggregate numbers, maybe slightly larger than when we combined.” Still, he says, “the configuration of our practices and strengths overall has been enhanced. It’s a matter of overall quality of industry expertise and practice expertise as opposed to sheer head count.”

Tom Clay, a principal of U.S.-based legal consulting firm Altman Weil, says a firm’s desire to be better able to serve its increasingly international clients is “sort of the standard response for anybody going international, whether it’s Canada or the U.S. or the U.K.”

But that’s really only one reason behind the current industry trend toward consolidation, he says. Law firms increasingly find themselves battling a challenging mix of threats that can make it hard for them to compete if they don’t merge.

In both Canada and the U.S., says Clay, “the demand for legal services, especially among major corporations, is not growing — it’s shrinking. There’s the pressure on pricing, the pressure to be more efficient, don’t overwork projects — all those kinds of things.

“Corporations look at doing major deals, M&A deals, or major litigations, and things of that nature and say, ‘you used to bill us hundreds if not thousands of hours for this; you’ve got to figure out ways to bill us a whole lot less by using technology, alternative staffing, legal project management, etc.’ Even though there might be as many business transactions, there’s less work in each transaction. And that’s only going to continue and probably increase in pace.”

Robert Bata, founder and principle of international consultancy Warwick Place Legal, says that, over the last five years or so, Canada’s legal market has averaged growth of only about 1.7 per cent.

“The country’s a bit over-lawyered” given the sluggish growth in demand, he says, meaning that for many firms linking up with a global giant might be the only way to grow.

Meanwhile, the growth of in-house legal departments has meant even less work for external counsel.

Kevin Coon, managing partner at the Toronto office of global giant Baker McKenzie, says given industry trends, his firm was surprised the wave of Canadian mergers didn’t happen sooner.

The global legal world has become more competitive, with more entrants to the market, such as accounting firms and new types of companies offering “commodified” legal services, he says.

An ever-increasing demand for simplicity and value can also make it harder to survive as a smaller firm, he says.

“Clients are looking to simplify the way they do business and looking for single-source advice” and don’t want to be bothered by the inefficiencies of dealing with several firms. They’re pushing for “efficiency, better service, quality, and price, quite frankly. . . . Those firms that are going to survive and/or expand need to be thinking about how you do that,” he says.

Philip Wolfenden, a partner with Shields O’Donnell MacKillop LLP, a boutique employment and labour law firm, knows mergers first-hand. He arrived at Faskens in the early 1990s, in the wake of a number of mergers, then last year left Gowlings — which recently announced it would merge with U.K. firm Wragge Lawrence Graham and Co. — for what he says were entirely positive reasons. Wolfenden says he believes the high-profile mergers involving Canadian firms over the last few years, in general, stand a good chance of being successful.

“It really depends how they’re going to do it, but I think it’s going to result in growth,” he says.

Becoming part of an international giant can also mean interesting opportunities,  especially for younger lawyers interested in working overseas, he says.

According to figures compiled by The American Lawyer, Norton Rose Fulbright’s gross revenue slipped by 4.7 per cent from 2013 to 2014, and its ranking among the top 100 U.S. law firms by gross revenue slipped from sixth to seventh place. Dentons’ gross revenue inched up by 1.1 per cent, and it remained in the 14th spot.

Both firms, however, have adopted a Swiss verein structure, which means the finances of the Canadian offices are not integrated with the rest of the firm.

Fleming and Pinnington don’t deny the legal industry is undergoing dramatic transformation that calls for firms to adapt. They insist, however, that behind the mergers was opportunity, not fear.

“It’s never been a question of survival,” Pinnington says. “Our aspiration was to be and continues to be at the leading edge of the transformation of the global legal profession in Canada and around the world.”

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