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Bradford

United states of DLA Welcome to DLA country: a vast terrain that now stretches from Bradford to Baltimore. DLA frontman Nigel Knowles ‘passionately’ believes in the firm’s US merger. Legal Business asks whether it’s all been properly mapped out RICHARD LLOYD

52 Legal Business December 2004/January 2005

London

Brussels

NIGEL KNOWLES HAS DONE IT. ON Saturday 4 December his firm’s equity partners gathered at the London HQ to vote on a merger to create a new global law firm. Meanwhile, across the Atlantic, partners from Piper Rudnick and Gray Cary Ware & Freidenrich cast their votes, largely by teleconference. A quick show of hands, a glass of champagne in the English firm’s Noble Street offices, and DLA Piper Rudnick Gray Cary was born. A man from Sheffield has come a long, long way. From 1 January, when the merger goes live, Knowles will be a co-chief executive, along with Frank Burch and Lee Miller from Piper Rudnick. Love it or loathe it, you’re going to see a lot more of DLA, come 2005. Some might say the merger is typical DLA: although the new firm is a step towards globalisation, it is far from the finished product. DLA Piper Rudnick Gray Cary is a composite of two nationals – one of which has a nascent European and Asian network – with a Silicon Valley stalwart bolted on. New York and London need huge investments – this isn’t the firm for ‘bet-the-company’ M&A. Corporate and finance in the world’s two financial centres are obvious weak spots. Furthermore, full financial integration is at least two years down the line; in the meantime, shared pots will reward partners who generate referrals and will pay for investments. The road map to global dominance isn’t quite finished. But there is a map, and Nigel Knowles has been cartographer at large all


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RESERVOIR DLA: (L-R) MILLER, BURCH AND KNOWLES STEP OUT

> year. Clients, meanwhile, could be forgiven

‘We were potentially the best firm on the block,’ he insists. ‘Simmons was in a bit of difficulty in terms of profits; Dentons was losing Europe; Norton Rose, in my view, had slightly lost strategic direction; and Ashurst had failed to merge with Fried Frank.’ Simple. It was time to do some profile-raising across the pond. ‘It occurred to me that we might not be known in the US and that I ought to put that right,’ Knowles recalls. So in June 2003 he toured the US, visiting firms that DLA’s management

for feeling a little disoriented.

Going international Back in spring 2003, Nigel Knowles was feeling snubbed. Pillsbury Winthrop, an American Global 50 player, was in town to identify potential UK merger candidates. DLA wasn’t on its shortlist and Knowles was dismayed. Whether DLA wanted to merge with Pillsbury was not the point; in Knowles’s eyes DLA, replete with bolt-on growth in Europe and Asia, should have been top of any merger list. You wouldn’t expect anything else from him, but Knowles rattles through the deficiencies of the opposition by rote.

Facts and figures

thought could blossom into potential partners. ‘I started off by saying that we’re not here to merge, we’re here simply to tell you a little bit about us,’ Knowles explains. Despite Knowles’s fears that his firm was not known in the US, one American firm had already introduced itself to DLA. Before the summer sojourn, a delegation from Piper Rudnick, a national practice created by the 1999 merger between Baltimore’s Piper Marbury and Chicago’s Rudnick & Wolfe, had visited DLA’s London office in pursuit of the missing European piece of its strategic jigsaw. Frank Burch and Lee Miller, Piper’s co-chief executives, listened intently as Knowles gave them a ‘quick blast’ of the DLA vision between meetings. The three managers, along with Piper’s chief operating officer, Jeff Liss, met again when Knowles visited in June. Over dinner in Washington, DC the quartet clearly hit it off. The similarities between the two firms became apparent: both had been formed by market-moving mergers (think Dibb Lupton Broomhead’s 1996 tie-up with Alsop Wilkinson for DLA’s epiphany); both had networks that spanned their domestic markets; and – crucially for such rapidly built firms – both had merit-based remuneration systems. The US firm was keen to go international. As one of the largest US firms without an overseas office to its name, Burch and Miller were concerned that Piper was losing work from key clients as more and more corporates expanded overseas. ‘The constant thread running through our expansion has been that we want to wrap ourselves around the important institutional clients of the firm,’ says Burch, a corporate litigator and

Turnover

Average PEP

Total fee-earners 2004

Total partners 2004

Number of equity partners

Revenue per lawyer

Revenue per partner

£275m

£475,000

1,260

355

115

£218,000

£774,000

£113m

£332,000

374

156

77

£310,000

£724,000

£271m

£394,000

876

385

232

£302,000

£704,000

£659m

£400,000

2,510

896

424

£263,000

DLA Gray Cary Ware & Freidenrich Piper Rudnick DLA Piper Rudnick Gray Cary

£735,000 Source: Legal Business/American Lawyer

54 Legal Business December 2004/January 2005


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DLA global merger

Key global comparisons

Turnover 2004

Net income 2004 (profit margin)

Revenue generation Cost +

Profit

per lawyer

per lawyer

PEP 2004 = REVENUE per lawyer

£0 £100k £200k £300k £400k £500k £600k

1 Clifford Chance

£950m

£226.5m (24%)

£246k

£77k

= £323,000

£558,000

£855.6m

£364.2m (43%)

£282k

£209k

= £491,000

£995,000

£830.8m

£225.2m (27%)

£188k

= £259,000

£363,000

£800m

£343.1m (43%)

£192k

£144k

= £337,000

£665,000

£720m

£227.2m (32%)

£205k

£95k

= £300,000

£670,000

£659m

£172m (26%)

£203k

= £263,000

£400,000

International, 406 equity ptnrs, 230 non-equity ptnrs, 2,945 total lawyers

2 Skadden, Arps, Slate, Meagher & Flom New York, 366 equity ptnrs, 0 non-equity ptnrs, 1,743 total lawyers

3 Baker & McKenzie

£70k

International, 621 equity ptnrs, 438 non-equity ptnrs, 3,213 total lawyers

4 Freshfields Bruckhaus Deringer International, 516 equity ptnrs, 0 non-equity ptnrs, 2,377 total lawyers

5 Linklaters International, 339 equity ptnrs, 161 non-equity ptnrs, 2,400 total lawyers

7 DLA Piper Rudnick Gray Cary International

£60k

International, 424 equity ptnrs, 472 non-equity ptnrs, 2,510 total lawyers Source: Legal Business Global Elite, July 2004

the charmer of the Piper management. Burch and Miller knew they had to be larger in New York and California before sealing a deal with an international firm. When DLA came into view, the Americans didn’t want to hang around. They helped accelerate Knowles’s thinking by sending in some heayweights to convince him that the time was right. So George Mitchell, a Piper Rudnick partner, former Democratic Senator and driving force behind the Northern Ireland peace process, ‘dropped by’ DLA’s London office, flanked by William Cohen, former US Secretary of Defence, and Joseph Ralston, NATO’s former Supreme Allied Commander of Europe (both part of the Cohen Group, an international consulting group affiliated to Piper Rudnick). ‘These guys tried really hard and said: “Look Nigel, we have got to persuade you to start talking seriously now, not in a year’s time”,’ Knowles says, almost sounding apologetic for the speed of the negotiations. Over two days at the IBA conference in San Francisco in September 2003, Knowles met with Burch and Miller again. DLA’s assessment of merger partners in America had produced a 12-firm shortlist, with Piper firmly heading the pack. Knowles had been won over. ‘I thought that these guys were the right guys, even if it was out of our desired timeframe,’

he explains. Piper satisfied DLA’s four main merger criteria: a US partner should have over 600 lawyers, a national network, a full-service practice and a merit-based pay structure. After the San Francisco talks, Knowles revealed his early discussions with the Piper pair to the DLA board and in November asked for permission to begin formal talks. Peter Wayte, former Alsop Wilkinson managing partner and DLA’s head of private equity, was instructed to act as lawyer on the deal. But as formal discussions started in New York and the first stories of a possible linkup started to circulate, DLA partners were slow to throw their support behind the deal. To many it looked like an ambitious step at a time when

the firm was still integrating offices across Europe.

Europe on their mind It took the partners by surprise; the US had not been on DLA’s agenda. Since April 2002 Knowles and his partners had been espousing the second great DLA vision: ‘To be a top-five full-service European law firm with a significant presence in Asia.’ Deals were being struck in Italy, the Netherlands, Austria and eastern Europe, while the firm’s insatiable appetite for laterals was fuelling growth in Asia. At DLA’s annual press conference this year, Knowles glowed with pride as, in the presence of many of his European managing partners, he announced that the firm now had 14 offices in continental Europe, forecast to bring in €70m worth of fees in the 2004/05 financial year. Progress, true, but DLA partners concede that the European practice still needs work. ‘It’s very embryonic in some areas. We need some consistency,’ says one. Knowles is

‘Financial integration is cardinal. We have a common global vision and it’s going to be the juice in the deal.’ Lee Miller, co-chief executive, Piper Rudnick December 2004/January 2005 Legal Business 55

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> riled by any notion that he is

SUPER BILLERS FROM THREE VERY DIFFERENT FIRMS

creating a house of cards on the Continent. ‘We’re not,’ he growls, before brushing aside concerns that it might crumble following the Piper deal. Andrew Darwin, Knowles’s long-time sidekick and DLA UK managing partner, is more studied in his assessment of any fragility in the firm’s international offering. ‘You can’t deny that a lot has happened quickly,’ he admits. ‘But a lot of the foundations were built BONNAR: GALLO: SCHULMAN: before the mergers.’ £14.25M $63M $25M For example, while DLA only merged with Dutch firm SchutRichard Bonnar, legacy DLA Grosheide at the beginning of Amy Schulman, Greg Gallo, legacy Gray Cary Office: Leeds this year, the two practices had legacy Piper Rudnick Ware & Freidenrich The lowdown: Bonnar is a key spent the preceding four years Office: New York Office: Palo Alto partner in a TMT business that getting to know each other The lowdown: Schulman brings in The lowdown: Gallo is a billed £14.25m last year. through the DLA Group. Deals $25m in fees annually. serious biller in the firm’s $63m He was formerly with Simpson were struck in Milan and She joined legacy firm Piper corporate practice. Curtis and Garretts before joining Austria with, as Darwin points Marbury in 1997 after training at He joined Ware & Freidenrich DLA in 2000. He followed up his out, well-established businesses Cleary Gottlieb Steen & Hamilton. in 1973 when he was one of just role advising Transport for London in their own right. ‘The foundaShe was charged with helping to seven fee-earners. He is now a on the introduction of the congestions might be new, but they’re build Piper’s New York practice, corporate specialist acting for tion charge with the instruction, not shaky,’ Darwin insists. which has tripled in size to around the likes of 3Com, Maxtor and alongside Allen & Overy, to advise But continental Europe’s two 150 fee-earners since 1999, and Protein Design Labs. Gallo gets the NHS on its massive IT largest economies, France and has forged her name as a highly most of what his practice needs outsourcing project. Germany, were glaring gaps in successful litigator for Piper’s with DLA’s offering in Asia, but DLA’s burgeoning network. corporate clients. will be keen to establish a presence LB says: Bonnar has a Görg Rechtsanwälte in Germany in Japan. largely domestic focus, but LB says: Schulman is the queen of and Ginestié Paley-Vincent & can only benefit from being a combined litigation practice that LB says: Gallo’s practice will be a Associés, both members of an integral cog in the global is an area of focus for DLA Piper crucial generator of referrals to DLA’s international alliance, technology practice. Rudnick Gray Cary. DLA’s European and Asian offices. were reluctant to talk merger. DLA was forced to launch a German practice with a breakaway from Miller, the real estate specialist and Piper’s paid from the same pot. Görg. Meanwhile, Piper’s acquisition of nuts and bolts man. ‘We have a common ‘Nonsense,’ says Knowles. ‘We Hogan & Hartson’s French practice in July global vision and it’s going to be the juice are one name, one board, one this year gave the firm a Paris office. in the deal.’ brand, one vision.’ Knowles believes the flow of work will Darwin is not as resolute. provide the foundations for the combined ‘You can characterise a merger Pooling resources firm: ‘Continental Europe will get so much in different ways,’ he notes. ‘Is It certainly helps that all three firms operate referral work from the US that they will PwC merged, even though it a merit-based compensation system. Manquickly solidify into DLA.’ He points to doesn’t have a global profits agement will not face the prospect of intedeals that they are already working on for pool? Of course it is.’ grating ‘super-pointers’ into a lockstep, à la Piper and Gray Cary, such as the $65m ‘I’m a big believer in profit Clifford Chance Rogers & Wells. In this acquisition a DLA corporate team closed integration,’ he continues. ‘It’s light, CC’s US merger looks increasingly at the start of November for Invitrogen worked well in the DLA network brave. For the next two years, 1% of DLA Corporation, a key Gray Cary client. and I want to work towards it Piper Rudnick Gray Cary’s turnover will go Doing deals together will undoubtedly over a sensible timeframe.’ into a combined global bonus pool, help unite the different parts of the firm, The message is similar designed to reward ‘good global behaviour’. but it could be argued that true integration from the US. ‘I think financial This equates to £6.6m of the combined fee will not be achieved until partners are all integration is cardinal,’ says income for the three firms last year: not

56 Legal Business December 2004/January 2005


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much, but a start. Two further pots, each also equating to 1% of turnover, will focus on investments, such as new offices, and ‘special investments’, such as paying nonexecutive chairman George Mitchell. Knowles explains the motive behind the shared pool: ‘If someone in the US refers a £5m opportunity to continental Europe, you have to give that guy a few quid.’ But 97% of the business is independent of each other. However, as more of the merger details started to emerge, the operation of the bonus pool became a cause for concern for the DLA partners. Knowles reveals some of the stresses: ‘It was all about people thinking: “Oh shit, £10m might drift off to America.” They actually hadn’t thought through the fact that I was one of the people determining it, and I wasn’t about to let that happen.’ But the flow of work out of the US is bound to be greater than that of any other country in the DLA network. As Knowles highlights, the US is one of the largest investors in every country where the English firm has an office. To balance it out, however, while Piper partners will inevitably receive more of the pool, DLA partners argue that the firm’s legacy network will receive the lion’s share of investment. Knowles knew he had a problem with partners’ concerns over the bonus pool. Up until this summer he was unable to tell partners about the deal’s details, except to admit, at the partners’ conference in May, that he wanted the merger to go ahead. Many in the DLA partnership needed convincing. As one corporate finance partner puts it: ‘I was neutral at best.’ Richard Bonnar, a technology partner and last year one of the firm’s biggest billers, reveals: ‘Before the end of July I would probably have voted against the deal.’ Knowles was ‘bounced’ into making a more detailed presentation to partners in late July. As the information started to flow to the DLA partnership, so did news that Piper was talking to a Californian firm, technology and life sciences specialists Gray Cary Ware & Freidenrich. Gray Cary, a Silicon Valley stalwart, solved Piper’s weak spot on the west coast and immediately appealed to DLA’s technology and corporate teams. ‘I almost fell off my chair when I found out we might be doing a three-way merger,’ Bonnar admits. In Bonnar’s view, the weaknesses in DLA’s technology offering were the lack of a

globally,’ he declares. The stakes were upped and Bonnar, a hugely influential fee-earner, liked what he saw: a way in to California’s high-rolling technology community.

global footprint and the need to strengthen the IP practice. Gray Cary helped to address the former, while the hire of a TMT team from Denton Wilde Sapte, headed by IP specialist Simon Levine, solved the latter. Adding some flesh to the bones has left Bonnar feeling bullish. ‘We have the component parts to be number one in technology

What’s in it for you? Bonnar, who has made his name and millions of pounds in fees on successive government IT projects (the London congestion charge and the NHS IT outsourcing), won’t see any dramatic

DLA: THE LEGAL BUSINESS BACK CATALOGUE From April 1991, when Dibb Lupton Broomhead and Prior’s managing and senior partners Robin Smith and Chris Barker posed menacingly for the LB photographer, to this our 150th issue, Legal Business has closely followed DLA’s progress over the past 15 years. Here’s the back catalogue in full. Apr ‘91

Sep ‘93

Oct ‘96

Jul/Aug ‘98

Jul/Aug 2000

DLA and Eversheds

Which would you join? DLA and Eversheds are the UK’s two largest national firms – and they’re looking to get bigger. They want you to come on board. Is it worth the move, and which is better? Legal Business contrasts the two BY

EMMA VERE JONES

LAW FIRMS AREN’T JUST FIGHTING for the best work, they’re fighting for the best people. None more so than arch national rivals DLA and Eversheds. They’re already massive – DLA has 1,000 or so fee-earners, Eversheds more than 1,600 – but it is senior hires that they know will enable elevation to the highest-quality work. Mission on.

Strength in numbers

Through 2001 and 2002, DLA made an impressive 35 lateral hires at partner level. This comfortably exceeds the figure for the larger of the pair, Eversheds, which has recruited 19 partners laterally since January 2001. In terms of volume, then, DLA has the upper hand. But quantity is one thing – quality is another. Managing partner Nigel Knowles may have invited a lot of people to join the DLA party, but are they A-list or

On recent form, such criticism is unfair. DLA has made particularly significant hires in the past couple of years. It all started with Ian Johnson from US firm Orrick, Herrington & Sutcliffe in 2000. To the surprise of many, a firm with Sheffield roots had the audacity to pinch Johnson from under the noses of top City outfits that had registered

May ‘02 54 Legal Business May 2002

merely a motley bunch from rent-a-crowd? ‘I’ve raised my eyebrows at a few and thought, “Why have they bothered doing that?”’ says an interested partner at a rival firm.

their interest. Suddenly people sat up and took notice. What’s more, this was followed by the arrival of Garretts’ Leeds office, almost in its entirety. Throughout 2001 the raiding continued. In the middle of the year, DLA picked up Ince & Co shipping specialist Mike Pollen, understood to have been one of his old firm’s top billers. Then more Orrick staff joined Johnson, including banking partner Jeanne Bartlett. Nigel Knowles is doing for lateral hiring what Imelda Marcos did for shoes. The shopping spree is continuing in 2002. In the last four months the firm picked up some more high-profile players, including James Lavery, a highly rated private equity partner from Pinsent Curtis

Illustration SIMON FARR

May 2002 Legal Business 55

Mar ‘03

December 2004/January 2005 Legal Business 57

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> boost to his practice. His largely public sector focus ensures that most of his work is domestic, so having over 1,000 lawyers in the US isn’t going to make a difference just yet. ‘I won’t change my focus for the next year or two,’ he confirms, ‘but I believe the practice needs a balance between public and private sector work.’ And Gray Cary’s client list, which includes the likes of Hewlett-Packard, Samsung, Intel and Agilent, as well as a $50m patent litigation practice, will only help increase the combined firm’s technology profile globally. From the Gray Cary perspective, it now has the capability to assist clients on acquisitions in Europe and IP protection in Asia, the two most pressing concerns for much of the firm’s client base.

she explains. Having colleagues on the ground in Europe and Asia can only be of benefit to her. And Schulman’s power should not be underestimated. In the early days of the deal she was part of the Piper delegation sent to the UK to convince DLA to start talking. ‘One of the most amazing lawyers I’ve ever met,’ is Knowles’s flattering description of her, clearly enamoured with her billings. Being able to tap into Piper’s litigation coverage in the US is part of the appeal of the merger for DLA’s clients. William Lewis, a senior legal counsel at

‘This deal will give DLA an incredible position in the market from which it will never fall.’ Nigel Knowles ‘All of my clients have something going on overseas,’ says Greg Gallo, one of Gray Cary’s most senior rainmakers. Through its lack of a national and overseas network, he could see that the firm was unnecessarily losing work. ‘For a few months leading up to the merger I monitored how many instructions we were sending out to other firms,’ he comments. ‘It was more than one a day.’ Meanwhile, from her office in New York’s midtown, Piper’s top biller, litigation head Amy Schulman, has been busy scouring the tie-up for potential benefits. It’s her job to save the bacon of the likes of Altria, GE and Cisco in multibillion dollar product liability and brand protection suits in the US. In the process she has built a $25m book of business. Although most of her cases are unique to the US, such as mass tort litigation, Schulman still identifies some synergies with the new global offering. ‘A lot of the litigation I handle is domestic, but I feel that global companies are increasingly held responsible in the US for what they do around the world,’

58 Legal Business December 2004/January 2005

Barclays, says: ‘As a litigation lawyer who manages litigation for Barclays in the US from time to time, I am encouraged by news of the merger. We have worked hard with DLA over several years to develop our model for the management of litigation in the UK, and are keen to export it to the US.’ This is a good sign for the contentious practice, but for those City rainmakers in finance, the synergies are less apparent. Piper’s key banking clients include Bank of America, Wachovia and a range of statewide banks, while Gray Cary brings contacts with JPMorgan and Morgan Stanley on the technology side. A crucial point. For DLA’s banking practice, using this merger to attract a team from a top six or seven City firm, plugged into the

investment banking community, along with a high-yield offering in the US, would be the dream scenario. ‘Yes, we will look to build in New York and London,’ Burch states. ‘But this merger is about a full-service global offering with key specialities in a number of practice areas, not about such things as “bet-the-company” M&A.’ A national model on a global scale if you like.

Eight more years For Knowles, the arch-deal doer, this is the deal to cap them all. At 48, he is still far from retirement. And he admits that he wants a further eight years in charge – as part of the Piper deal he has secured another four-year term. He flatly denies that any of his ego is wrapped up in this deal. ‘I passionately believe this is the right thing to do,’ he emphasises. ‘This deal will give DLA an incredible position in the market from which it will never fall.’ At times it’s hard to see the dividing line between his ego and DLA. His conviction that this is the right deal, and the personal capital that he has invested in it, is classic Knowles; sharing frontline management duties is not. Not surprisingly, the management triumvirate go out of their way to stress the chemistry that exists between them. Few would bet against the former DLA man becoming sole chief executive; Knowles himself won’t be drawn on how it will pan out. For now, he must concentrate on proving his worth to over 1,000 lawyers in the US, most of whom don’t know him. The European end of Knowles’s new empire now needs to deliver. Subsidising European under-performance is a pastime most US lawyers are tiring of. This merger happened because a Yorkshireman felt his firm was being unjustly ignored. Now, Nigel Knowles is co-chief executive of a top ten global law firm, and mixing with a former special adviser of President Clinton and the Democratic elite of the US. If and when Hillary Clinton runs for President, don’t be amazed if there’s a silver-haired chap from Sheffield standing not too far away. It’s all part of the day job for the man who started out at Broomhead & Neals. LB richard.lloyd@legalease.co.uk

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RICHARD LLOYD London Bradford Brussels 52 Legal Business December 2004/January 2005 RESERVOIR DLA: (L-R) MILLER, BURCH AND KNOWLES STEP OUT...

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