By Amanda Becker
Monday, May 3, 2010;
Over the years, Hogan & Hartson has made no secret about its intention to expand. In 1990, the Washington law firm opened its first international outpost, in London. After Chairman Warren Gorrell took the helm in 2001, firm revenue doubled as he supervised the acquisition of offices in Munich, Beijing and Abu Dhabi.
But the firm's growth has mostly occurred in fits and starts by snapping up smaller offices in the United States and abroad -- until May 1 when the already big firm doubled in size after formally completing its merger with Lovells, a London-based firm with a similar growth strategy and 29 offices worldwide.
The combination is likely to propel the longtime D.C. firm into the top three among U.S. firms in both the number of attorneys and gross revenue.
"This merger will enable us to make a quantum leap that we never could have achieved by bringing in partners from smaller firms," Gorrell said.
Though the number of law firm mergers slowed in the latter half of 2009 and the first quarter of 2010, analysts say the marriage of Hogan & Hartson and Lovells is one of five that are scheduled to be completed during the second quarter -- all but one involving overseas firms.
"To be sure these are challenging transactions to put together . . . it's different bars, different regulations, different tax structures, different compensation structures . . . but given the choice of growth by ones and twos or growth by a significant transaction, everyone likes to look at the significant transaction," said Michael D. Short of the legal consultancy Hildebrandt Baker Robbins.
The formation of Hogan Lovells, as the firm will be called, has been in the works for two years. Gorrell said the idea for the 2,500-attorney monolith began to form over drinks with a Lovells colleague in Los Angeles as the two partners brainstormed ways the firms could collaborate. Discussion became action when in 2009 the firms announced they would merge. Global finance giant Barclays and technology services firm IBM are among the firms' common clients.
Gorrell characterized the deal as a "merger of equals" that will create one decentralized firm with 40 offices and revenue exceeding $1.9 billion. Hogan Lovells' management team will be led jointly by Gorrell and his Lovells counterpart, John Young. The leaders of the firm's board will likewise come from each firm.
"As a business proposition, we'd all acknowledge there's a benefit to having one CEO, but we thought it would be beneficial and reassuring to our people for us to take on that role together," Gorrell said.
One challenge in any cross-border merger is melding partner compensation structures. Lovells had previously been operating on a modified lock-step model, which compensated partners based on seniority. Hogan & Hartson paid its attorneys based on contributions made to the firm.
"There are significant differences," said legal strategist Peter Zeughauser, who helped Lovells assess the U.S. legal market during the transaction. "In the United Kingdom and European Union . . . they've been slower to go to merit-based compensation."
Gorrell said transitioning Lovells attorneys to Hogan's compensation system was one of the major issues on which the two firms needed to agree before the merger could get underway.
"They were skeptical, they wanted to be sure they weren't getting into an eat-what-you-kill system," Gorrell said. "That was a big issue, but one where we were convinced we could really make it work for everyone."
Since the merger's announcement, some attorneys have chosen to leave the firms. Three Lovells litigators left its New York office to join another firm. Lawyers in Hogan & Hartson offices in Berlin, Geneva and Warsaw have elected to break off to form or join other outfits. Hogan Lovells does not expect the merger to result in any further reduction of force -- Gorrell said for attorneys in the firm's Washington office, it would be business as usual.
Once the intricacies of firm leadership and compensation structure were hammered out, firm leaders turned to a more overarching concern: the new firm's name. Since both firms had an "emotional attachment" to their previous identities, Gorrell went to a joint meeting armed with a plan.
"I prevailed that it made sense to have Hogan come first," Gorrell said. "It took a lot of time, but we were both guided by what we thought would be best for business."
The Hogan Lovells logo, however, will be ensconced in Lovells' iconic lime-green box.