Law: A case of merger in the first degree

The trend is for the creation of new legal giants, but is it one that firms will be wise to follow?

OLD LAW firms never die, it seems, they just get engulfed by larger firms, or merge to become twice the size. A number of centuries-old firms have been more than willing recently to be swallowed up in a bid to achieve the much-vaunted ideal of critical mass and added value of management speak.

One well-established firm of City lawyers, Frere Cholmeley Bischoff, which was founded in 1750, has decided to throw in its lot with national firm Eversheds. When the merger takes place on 1 August, the new firm Eversheds and Frere Cholmeley will be the largest in the UK, with 322 partners and 988 fee earners, overtaking Clifford Chance, which has 1023 fee earners in the UK.

Clifford Chance itself is the result of the merger of Clifford Turner with Coward Chance in 1987 to form London's largest firm. How long that ranking will last will depend on how successful Clifford Chance is in putting in place its announcement earlier this year to double the number of its lawyers in Europe. The perception of Clifford Chance and Eversheds is also very different, with the former seen as one of the Big Five City law firms, and the latter sometimes unkindly referred to as a UK McDonalds of the legal profession, but that image has been changed recently with Eversheds getting US chemical giant DuPont as one of its clients after a "beauty parade".

It seems that the urge to merge is irresistible, even at the expense of losing a long-standing name. The 213-year-old Wilde Sapte has just narrowly avoided losing its independence and name now that the merger with Arthur Andersen is off, but it is seeking another merger partner.

Keith James, Eversheds' executive chairman comments: "Merger should not be an end itself. It should only take place if it is the best way of developing the firm. For some firms, it may be better to grow organically, particularly those with niche practices. For mergers to succeed the cultures of the two firms must be compatible. They must have similar ambitions. The breakdown of talks between Arthur Andersen and Wilde Sapte illustrates this."

But even the route to the Eversheds/Frere Cholmeley deal - and what will essentially be the demise of 248 year old Frere Cholmeley - was not a smooth one. The background to the story is the boom period of the 1970s and 1980s, when Frere Cholmeley's debt problems arose from expansion in London and overseas in Barcelona, Berlin, Dubai, Milan and Moscow. In a bid to stem the tide of its lawyers leaving over the last five years, it did what many businesses do - it called in the management consultants, in this case Hodgart Temporal.

Such a move almost always leads to drastic measures, but Hodgart Temporal director Alan Hodgart stresses that three-quarters of his law firm clients do not have to take drastic measures, and in this case the report was that Frere Cholmeley did have viable strategy prospects.

The advice was to focus on four core areas - financial services, media and entertainment, property and eastern Europe - and having carried out that exercise, the consultants were called back in to advise further on whether or not to merge and with whom.

Eversheds' London managing partner Peter Scott and Frere Cholmeley's managing partner Alan Jenkins met at a dinner last year, and the merger was announced last month.

But it is not simply a matter of Eversheds and Frere Cholmeley riding off into the sunset as the UK's legal giant - there has also been a breakaway firm from Frere Cholmeley called Forsters which will be based in Mayfair and will have 11 partners and 44 lawyers covering property, private client and corporate/media work. Other partners are leaving to join other firms in the City - Bird & Bird, Osborne Clarke, Denton Halland Field Fisher Waterhouse.

That has fuelled speculation as to whether the clients will stay with Frere Cholmeley. It is thought that Elton John, who is a client of Frank Presland (who will be joint senior partner post-merger) will stay, and the firm also has other high profile clients, including Warner Music and McDonalds. The management consultant's advice as to keeping clients is that the merger partners have to make a business case to the client: "If the business logic is there, the business people will see it."

Rumours of other mergers are rife in the City - mergers of law firms with other law firms, and also with firms of accountants. But Hodgart says that although Frere Cholmeley's financial position was "somewhat unique, there are a number of London firms which are already considering merger to reach perceived strategic goals. The problem is that sometimes it makes much more sense for firms to split into two".