The law firm boss who says his US merger is set to take on the world
For a man weeks away from the biggest deal of his life, Lovells’ managing partner David Harris has a remarkably light air about him.
On 1 May the City institution – it can trace its history back to 1899 – will merge with US rival Hogan Hartson to create one of the world’s largest law firms, called Hogan Lovells, with revenues of $1.8bn (£1.2bn) and 2,400 lawyers spread across 40 offices worldwide.
After 18 months of on-and-off talks Harris believes the enlarged partnership will be ready to pitch “more credibly” for the largest slices of legal work around the globe against rivals such as Linklaters, Clifford Chance and Allen & Overy.
Harris, 55, might seem lean and relaxed as he sits in his neatly designed eighth floor corner office with floor-to-ceiling window views across Holborn, but he is keenly aware of what is at stake. He says: “This deal gives us scale. The biggest firms get to work on the biggest deals.”
Harris is aware that from day one the new firm must speak with one voice to its existing clients – who include Barclays, News Corporation, ITV, IBM and Ford – as well as new corporates tempted to take a look at what the new, enlarged firm will have to offer. He says: “It is critical that in May we begin operating as a single firm. We must present ourselves as a single firm.”
The merger means a new job for Harris. He becomes joint chief executive with his Hogan counterpart Warren Gorrell until 2014. And Lovells’ John Young and Hogan’s Claudette Christian become joint chairs for a two-year period.
Harris paints this deal, like most tie-ups, as a “merger of equals”. And on the face of it the figures bear him out. The US firm turned over $864.5m (£560m) last year, while Lovells’ sales stood at £531m. Profits were aligned less perfectly, with Lovells’ average profit per equity partner at £586,000 compared to Hogan’s $1.11m (£719,000). Lovells employs 1,180 lawyers while Washington-based Hogan has 1,210.
But what made the merger appealing is what each firm brings to the party.
Harris says Lovells “brings a strong London and European base to the table. We also have a strong footprint in Asia and are developing in the Middle East”.
Hogan, the 22nd largest law firm in the US, has a lot of strength and depth across America, with 80 per cent of its sales coming from its domestic market. By contrast, London represented only 42 per cent of Lovells’ sales last year; it has long been more globalised than its US partner.
For Lovells, Hogan means first and foremost access to the American market. Harris says: “Trying to compete head to head with US firms in America is a good way to lose a lot of money. They have such penetration, that you are left scrabbling around for bits of work. And you have to ask yourself, is it worth it? This deal gives us size in the US.”
The merger gives Hogan access to the lucrative London market, where capital is raised and deals are made by corporates based all over the world. Garry Pegg managing partner of Hogan’s London office said last month: “For a long time we’d been really trying to break beyond 70 or 80 lawyers in London and it became very difficult to recruit. We saw a lot of people, but just couldn’t get the right people. In London we’d never get to where we wanted to be by hiring ones and twos.”
Both firms specialise is similar areas. Lovells and Hogan have strong banking and corporate divisions – the engine room of any large commercial practice – but will also have sizeable regulatory, antitrust, intellectual property, real estate and litigation departments.
Harris says Lovells’ focus on areas like intellectual property and litigation was important to a firm that was half the size of its Magic Circle rivals; these areas will remain key units in the future.
He says: “We have to play to our strengths, and not just mirror larger rivals. We always have to look for competitive edges and these departments are important for us.”
The merger has been broadly welcomed by the legal industry, and some hope it will herald the beginning of another round of consolidation.
But others wonder if the Hogan Lovells deal is more of a defensive move to keep them at the head of the pack of firms outside Magic Circle and White Shoe firms in their respective countries, rather than competing directly against the world’s biggest law firms.
Harris, often described as one of the nicest lawyers in the City, comes as close as he can to bristling here. He says: “We don’t see ourselves as a mid-tier law firm. We are in competition to pitch for high value work from banks and large corporates against Magic Circle firms. Our business is to work on their biggest problems.”
But he adds: “There is always a defensive aspect to these deals, I won’t deny that. If we did not do this deal there was a chance that clients might move to law firms with a stronger M&A and corporate practice in the US. Over the last few years we began to hear our clients increasingly ask for this. And this spurred our search for a partner.”
Other critics wondered if choosing to merge in the middle of a downturn was either bold or foolhardy.
Not surprisingly Harris thinks the move makes sense. He says: “If we had merged during good times our rivals might have pulled ahead while we integrated. But during a market like this, everything is slow, and that gives us time to prepare for when the market picks up.”
With any merger comes the problem of conflicting clients, and Harris says there are some in the life sciences, media and insurance industries, though no business has left the law firm yet.
Harris says: “We are in the process of managing these conflicts. We tend to attract clients from certain industries because we have a number of practice specialisms like intellectual property or litigation. But that means we are used to handling clients from the same industry, we are used to talking to clients about how we handle their business.”
Harris may be keen for Hogan Lovells to hit the ground running, but he is aware that the world economy is currently stuck in the starting blocks.
He says: “The UK, and many markets in the West, are cautious at the moment. Sentiment is picking up but we will not see a sustained upturn this year in terms of IPOs and M&A. What we are more likely to see are isolated markets doing well, such as private equity or real estate. I don’t see a V-shaped recovery, so 2010 is going to be a tricky year.”
And for Harris, who is about to manage a major merger through a fragile economy, it will take the skill and the fearlessness of a lion tamer to make sure he delivers the goods.
CV | DAVID HARRIS
Age: 55
Work: Joined Field Fisher Martineau as a junior lawyer in 1977. Moved to Lovells in 1979 and specialised in capital markets. Partner since 1986. Co-ordinating partner for the capital market and corporate finance group 1989 to 1995. Managing partner since 2005. Co-chief executive of Hogan Lovells from 1 May 2010
Education: Read Law at London University
Family: Married, four children
Lives: Shere, near Guildford
Lives: Has ridden since he was five. Took up polo nine years ago. Skis. Has two electric guitars and plays regularly