The Tale of Two (Putative) Mergers

If "quadrifecta" is a word, then I suppose we have one, although some of the four firms constituting it are, in the immortal words of Orwell's Animal Farm, "more equal than others." 

Reed Smith is reported to be eyeing an acquisition of Chicago's Wildman Harrold, while Squire Sanders is looking at Miami's Steel Hector.   The potential Reed Smith deal was earlier rumored, but unless I missed something this is the first writeup of the Squire Saunders acquisition.   So much for the facts.  What does this mean, if anything?

To begin with, the two purported deals are completely unalike.  The Squire-Sanders/Steel-Hector move is an opportunistic grab by Squire-Saunders of the equivalent of a drowning man; Steel Hector is variously described as:

• "suffering financial setbacks;"
• "plagued by partner defections;" and
• subject to "much speculation about its ability to stay afloat;"

after an overly aggressive expansion into Latin America in the 1990's, combined with taking on as partners former ambassadors and judges with more marquee than market value, blew the lid on expenses.  As luck would have it, key clients more or less simultaneously decided that would be a good time to implode, themselves.  The managing partner who had led these initiatives, Joseph Klock, was deposed and the firm's ranking in South Florida has dropped from second to fifth.

Let's back up:  "Opportunistic grab?"   "Drowning man?"  Am I being too harsh?  I demur:  I am only describing the harshness of the marketplace, a bedrock reality which, no matter how loudly some may keen that "we are a profession, not a business," is something you have no ability to opt out of.   Steel Hector, of course, understands this; they were reportedly trying to recast themselves as a "boutique" before Squire Sanders appeared on the horizon—perhaps the only realistic alternative option.

Although these comments were offered in the context of Reed Smith, they apply with equal if not greater force to the corner Steel Hector finds itself in (emphasis supplied):

"You clearly see a squeeze in the 100- to 300-[lawyer] range," said Lee Miller, co-chief executive of DLA Piper Rudnick Gray Cary, a 2,700 lawyer international firm. Five years ago, Miller's firm was known as Rudnick & Wolfe, a 355-lawyer Chicago practice that depended heavily on real estate work.  But, Miller said, the firm had to become more global and diverse in order to meet the changing needs of its clients. "The law firm world mirrors the corporate marketplace. It's as simple as that," Miller said."

The Reed Smith deal—which smells to me less conclusively "done" than Squire Sander's—presents an altogether sunnier landscape.   Reed Smith has been, since the turn of this Century, on a mission to grow beyond its Pittsburgh roots (not, in itself, a half-bad idea, given the fall from economic prominence of that city).   The presumed Wildman-Harrold acquisition would be merely the latest acquisition-from-strength in that strategically calculated and professionally executed long march. 

Michael Pollack, Reed Smith's Chief Strategy Officer (full disclosure:  I have met Michael and consider him a friend, although I have not discussed this post with him), summarizes the rationale for the putative deal with all the relaxed and considered perspective of someone doing a deal because he wants to, not because he has to:

Pollack said Chicago would be a logical next step for Reed Smith being that the firm has the East and West coasts pretty well covered.

"There is a lot of space between Pittsburgh and San Francisco," Pollack said. "It doesn't mean we have to fill it. It's just a question of opportunity. Chicago is a great legal market with a lot of companies based there. We have a lot of clients there and in the upper Midwest that might give us more work if we were strategically closer to them. That's why we did the Crosby deal."

[The "Crosby deal" was Reed Smith's 2002 acquisition of Oakland-based Crosby-Heafey, which instantly made Reed Smith a player in California.]   Interestingly, Michael also notes that "it's not our style" to enter a market where the firm can't be relevant.  And "relevant" means?  "100 lawyers."  In their New York office, Reed Smith just happens to have nearly that number.  What a coincidence.

The moral of the machinations announced today?  (a)  The marketplace is harsh.  (b)  You can deal with that by becoming global and matching your corporate clients' geographic footprints.  (c)  Or you can deal with that by going boutique, or regional-powerhouse, or alternative-fee innovator.  (d)  What you cannot do is not deal with it.