In the last three years Dentons has undergone a major metamorphosis – going from a 275-fee-earner outfit after the 2010 SNR merger to being the largest law firm in the world.
The firm has invested a huge amount of resources in its expansion strategy already, with seven mergers in 2015 including high-profile moves into China with Dacheng and the US with McKenna Long & Aldridge.
At The Lawyer’s Global Collaboration Summit earlier this year, Dentons chairman Joe Andrew addressed a room full of sceptical independent law firm managing partners from around the world. He joked that in order to gain equivalent market share to the Big Four accountants, Dentons would have to build a 45 million-strong lawyer proposition. This, he said, would be unwieldy.
“We will continue to grow in major markets around the world,” Andrew said. “We believe that we can be significantly bigger than we are today. No matter how big we are, how broad we are, we will never have every single person that we need for our clients. This is a way to bring a level of transparency and candour on that.”
But Andrew also claimed that Dentons is the biggest referral firm in the world – not just within its own walls but also to independent firms across the world. Contrary to market perception, he said that Dentons referred work to 920 other firms in 2015, and received over 500 inbound referrals, gaining grudging admiration from the Chinese, African and European managing partners in the room.
Dentons, he said, has moved from a mode in which it seemed to be gaining a new jurisdiction every month to one in which it understands that clients do not need it to be everywhere in the world.
Has Dentons deviated from what some describe as a “Pac-Man strategy”? At what point does the frenzied acquisition trail become a sober exercise in integration?
Europe: the lure of the polycentric
Since the 2013 merger with Salans, a number of partners have left Dentons in Continental Europe, for a variety of reasons and to a variety of destinations. The vast majority were legacy Salans, as SNR Denton had only a limited presence in Europe – a small Paris office, plus Moscow and Kazakhstan.
Salans arguably always struggled to establish a clear identity. To some it was an Anglo-French firm; to others, following its groundbreaking 1998 transatlantic merger with small New York outfit Christy & Viener, it was a Franco-US player. Salans itself always tried to brand itself as ‘European’ – it was, in fact, the architect of Dentons’ infamous ‘polycentric’ strategy.
For a time, Salans was in a referral relationship with Pinsent Masons, but Pinsents eventually called time on the alliance in favour of pursuing its own European growth.
Salans, everyone agrees, was a “true partnership”, but several ex-partners say that the firm was not able to be tough enough on under-performers.
“It was a loose association of people largely doing their own thing,” says one source. “There was a lot of individual shoe leather that went into looking after partners.”
Partners also had a significant amount of local autonomy, but that meant, according to some, that there was not enough joined-up thinking between the offices. France and Poland were a similar size in terms of headcount, but Warsaw reportedly brought in significantly more profit than Paris.
Salans was hit hard by the financial crisis. Turnover slumped from €229m in 2008 to €193m the following year. Although in the following three years revenue did climb, by 2012 – the last full year pre-merger – at €220m it was still below 2008 levels with a lower profit margin.
Sources say the firm had lost market position, particularly in Paris, and claim that despite Salans’ polycentric model, it was the “cash machine” in Poland that was running the show.
Accordingly a merger was the firm’s best option, and Salans’ broad European footprint and strength in areas like real estate clearly attracted the SNR Denton management. Many ex-Salans partners agree that the influence of the firm’s polycentric model should not be underestimated and speak warmly of Salans’ last managing partner, Dariusz Oleszczuk, and his successor as Dentons’ Europe CEO, Tomasz Dabrowski.
“He’s a fair guy and a shrewd businessman. He doesn’t lose time; meetings are short, he gets to the point but he knows how to take tough but fair decisions,” says one former partner of Dabrowski.
Dentons’ European expansion also wins plaudits, particularly last year’s Italian launch. But those who have left the firm since the merger complain that for them, there was not enough cross-selling between practices and offices.
“The way it was organised didn’t really entice people to cross-sell,” says one former partner, now at a rival international firm.
“One of the big problems it had when I left was that the cross-selling part was, compared to other firms, relatively low,” adds another. “What’s the point of being global if you don’t refer global business to each other?” The partner claims that the firms which have joined the merger are not homogenous enough to produce the cross-selling results or boost the quality of Dentons’ European clients.
Most agree that Dentons has not lost reputational ground in Europe since the merger – but neither has it gained ground. That work is yet to be done.
“I admire that to some extent they believe that just by dreaming big enough this will happen,” concludes a former partner.
It’s not over yet
Any hint that Dentons needs time to digest its mergers does not mean it will stop snapping up firms. According to Dentons UKMEA CEO Jeremy Cohen, around 85 per cent of the firm’s clients demand that the firm be in Australia. This alongside Latin America is a key region identified for future growth. So far, the firm is extending into Australia through a planned merger with top-10 local firm Gadens, while it has launched in Latin America through tie-ups with Colombia’s Cárdenas & Cárdenas and Mexico’s López Velarde Heftye & Soria, adding around 55 lawyers in Colombia and 35 in Mexico.
Dentons may be the largest law firm in the world by headcount, but Andrew emphasises that relationships with independent firms are a crucial part of its strategy.
“We’re the biggest referral firm in the world,” Andrew says, “but there are still misconceptions about us in the market.” Dentons has an important brand exercise ahead of it to quash peers’ doubts about the credibility of its strategy.
Dentons’ extraordinary trajectory has made the market sit up and take notice. In fact, it is probably fair to say that pretty much everyone in the legal market has an opinion about Dentons’ strategy – but not many are entirely favourable.
“I’m glad I’m not there,” a former partner says. “When Dentons did the initial merger it diverted a lot of time and attention. Dentons has been good at massaging the press and getting them to present the numbers that they want people to see. It’s nonsense – the firm is under a Swiss Verein structure; it isn’t even properly merged.”
The firm is under “layers and layers of management”, another ex-partner claims. “Unless there are some strong benefits, which I don’t see from Dentons, you’re putting together some mid-tier second-rate firms for no real reason.”
“I have very warm feelings towards the firm and the people in it,” an ex-partner who was part of the firm’s management says. “There was a philosophical difference: to me the goal was to create a firm that had a clear, distinct ‘one firm’ feel. From what I’ve read that’s not possible or necessary.”
An independent consultant says the firm’s message seems to be “smash it all together and hope”.
“Just because nobody else has done it doesn’t mean it’s the right thing to do,” the consultant adds. “Getting people to play nicely together is a nightmare. Getting them to do it when you’re operating a Pac-Man style strategy is even worse.
“I think it’s capable of working,” the consultant claims. “But I think they underestimate the time needed to get people to play well. The risk is that for any new clients, if the service isn’t joined up, it will be off the panel list for another five years.”
Dentons is clearly facing a major challenge to its growth ambition. If it is not capable of changing market perception, future referrals will inevitably be affected. Andrew believes that brand recognition will help with the process.
“We are dramatically improving and increasing awareness of our brand,” Andrew claims. “We have combined with great firms. Simply by having done so many consolidations we are in the media more than any other law firm.”
But is focusing on the brand enough? Operationally, the scale of Dentons’ acquisition strategy brings very specific challenges. The chairman of a US law firm has disclosed that their firm spent $20m on integration following a recent merger. The options for firms that do one merger are limited, says the chairman, because it takes up to five years to complete the process – time that is taken away from fee-earning in a highly competitive environment.
“Dentons has a poor plan and will have poor execution,” the chairman says. “They don’t even pretend they are looking for quality mergers – they aren’t even keeping up the pretence, and that astounds me. This isn’t a strategy for clients because Dentons can’t guarantee quality. Clients don’t want to sign up to be given service by disparate or subpar firms.”
A Dentons partner argues that any market negativity might be borne from other people’s conservatism and fear. “They are thinking, what if they’ve got it right and we’ve got it wrong?” he says.
“Dentons is genuinely very collaborative, within the London office and on a cross-border basis,” he continues. “It’s a firm that celebrates and encourages cross-team, cross-border and cross-office collaboration and co-operation feeding into that.
“I think it’s a sizeable and sophisticated firm, a firm that’s growing not only in terms of size but also in terms of brand and strategy and momentum.”
According to Andrew, the strategy is clear. “We don’t have to exaggerate having more lawyers,” he argues, “quantity is just a tool for quality. We are not that much different to other law firms. We are obviously striving to operate as one firm, to have different training programmes and to have a process to expand across regions.”
In order to validate Dentons’ bet on quantity to get the quality, the firm’s partners must prove that the internal referral strategy works. According to Andrew, Dentons’ investment in partner meetings around the globe as well as the economic incentive to refer are sufficient to ensure collaboration between fee-earners.
However, many argue that the very nature of Dentons’ mergers – fast-paced and with firms of disparate cultures and strategies – means that partners have little confidence in sharing work with their new colleagues. How can Dentons prove its strategy is working?
One of the most illuminating approaches is to examine Dentons through the lens of real estate, which accounts for over 15 per cent of its $2.12bn revenue. Does Dentons’ foundation referral system work in practice here? The Lawyer has examined how much the offering has grown over the past three years, and whether the investment has borne fruit.
Real estate and referrals
Real estate is one of the practices most affected by the firm’s evolution because of its strong ties with legacy Denton Wilde Sapte, Salans, SNR and now Dacheng and McKenna Long & Aldridge.
The multiple mergers have not only bolstered the practice’s headcount, they have transformed the makeup of the firm’s global real estate capabilities as well as the kind of work and clients partners can hope to win.
There is a marked hierarchy within the real estate practice: 10 global leaders, followed by eight regional heads and 31 country heads.
Seven of the total eight real estate global leaders at the firm in 2013 are still in their roles, the exception being Eric Rosedale, who was dropped from the Dentons line-up in 2014. In 2015 the firm added William Timmons, and in 2016 Virginia Glastonbury – former legacy UK Denton Wilde Sapte senior partner – and Pawel Debows.
According to global practice head Evan Lazar, who is based in Prague, real estate is one of the firm’s “core practices” accounting for around 20 per cent of the total capability of the firms that merged with Dentons last year.
For Dacheng, this translates into around $80m (of a total $400m or RNB2.25bn for 2014), and for McKenna Long £61m of the reported total $305.2m revenue for 2014.
That matches Dentons’ data: in the last three years the headcount of real estate practice has more than doubled.
In 2013, the firm had a total of 524 fee-earners in the practice, compared to 1,102 in the practice as of April 2016. According to data provided by Dentons, 14 partners have left the practice since 2013, two of whom took up in-house roles in Europe and two who retired.
Partners who left for other firms are Stephen Webb, who joined King & Wood Mallesons; Dan Kidd, who joined Blake Morgan; and Rosedale, who joined Greenberg Traurig. In North America, Canadian partners Patrick Devine and Jason Park teamed up at boutique Devine Park and US partner Scott Toban left the law.
The largest growth in real estate was in Asia, where there was an increase of over 3,000 per cent from 16 to 509 fee-earners in the last three years alone. This is almost exclusively thanks to the firm’s merger with Dacheng. Big stars in the practice include Dacheng real estate and construction senior partner Charles Wu, based in Shanghai, who acts as client relationship partner to CP Group, IMC Group, China Resources Land, Longfor Properties and COFCO Property, among others.
The firm matched lateral hire investment in real estate in 2014 again the following year, with a total of 13 hires across the network in both periods compared to just one in 2013.
The majority of lateral hires in real estate in the last three years was in Europe, with a total of 15 across France, Germany, Italy, Luxembourg, Romania, Slovakia and Ukraine. The largest group was from DLA Piper, with a team led by Italy managing partner Federico Sutti in 2015.
Of the total hires in real estate, the US had one in 2014 and eight in 2015 following the impact of the McKenna Long merger.
So far this year, the firm has made two real estate lateral hires, in New York and Luxembourg.
China: integration inches forward
global vice-chair (Beijing)
Dentons’ Dacheng merger, which took effect in November 2015, has given its global network over 3,100 extra lawyers and 44 offices in mainland China.
However, top-tier players in China from both domestic and international firms have raised questions on the extent of collaboration between China and the rest of Dentons’ global network as well as the quality of work Dacheng handles in China.
The core issues lie in the lack of real integration and consistency within the 44 Chinese offices, both financially and operationally. Most of the offices have joined the Beijing-headquartered Dacheng national franchise in recent years by changing their names and remaining financially independent. They have very different approaches and internal procedures to manage areas such as accounting standards, fee rates, cost and profit-sharing arrangements and compensation for lawyers.
Because many of the rebranded offices are based outside of the main economic centres, such as Beijing, Shanghai and Guangzhou, a considerable part of their practices still consist of low-end and “traditional litigation” work, the likes of conveyancing, personal injury claims and divorces. Key performance metrics such as annual turnover, average equity profit per partner, and average revenue per lawyer also vary hugely from office to office.
Although partners of the Chinese firm hail the global combination with Dentons as a positive and significant development, they have expressed concerns over the low level of collaboration and cross-selling within China as well as within each office.
One partner claims it is impossible to refer work because he does not know who the best counterparts in other domestic offices are, mainly due to a lack of firm-wide marketing efforts.
One corporate partner delves into a more fundamental issue hindering internal referrals – the ‘eat-what-you-kill’ remuneration systems used by most of the firm’s China offices.
“How much a partner can take home is essentially based on how much revenue the partner and his or her team generate,” says the partner. “There’s no real incentive for them to send work to other partners or teams.”
He adds that some partners would keep the work even if the matters fall outside of their expertise.
This is not a unique situation in Dacheng. As a matter of fact, the majority of the Chinese firms operate on this basis, even
in some of the country’s top-tier firms, according to The Lawyer’s China Elite 2015 report.
Almost six months into the merger, Dentons’ global and China leadership teams are understood to be putting a much stronger emphasis on integration in China, an effort let by global vice-chair Xiao Jinquan.
Sources indicate that the global management has outlined a three-year timeframe to implement its specialisation plan, and is mulling the idea of launching a new China board this year to oversee the operational integration among its 44 domestic offices.
Global referrals
Despite the integration challenges within China, there are many referrals from China to the rest of the network, partners claim. One example is a Chinese company introduced to Dentons US in 2015, which has already contributed $15m in billing.
“We are doing large projects across the globe, some of them have a China component to it,” Andrew says. “I think it’s a question of expectations. China has clearly exceeded our expectations.”
However, not all Chinese partners have seen the benefits of being a global network. They claim that there has not been a huge amount of inbound referrals to China. In addition, some complain about a “slow response rate” from foreign counterparts and “higher than market average fee quotes” from partners in Dentons’ overseas offices, making referring work within the network difficult. It is not compulsory to refer work within the network, so many Chinese partners still work with other firms in jurisdictions where Dentons has offices because of the reasons spoken about above.
Client wins
According to Dentons’ data, the firm acts for 15 Fortune 500 clients on real estate matters (see table, above), including JP Morgan Chase, Bank of America, Citigroup and Wells Fargo. The firm also represents a number of private equity investors, including Blackstone, TPG and Apollo Global Management.
Dentons argues that cross-border capability is its major advantage when pitching for clients, but in the real estate sector, the firm’s number of global clients has not yet surpassed the number in a single jurisdiction.
The firm’s figures show 36 clients in a single region versus 16 cross-regional clients. Of the cross-border clients, six receive advice in the firm’s four main regions (the US, Canada, UKMEA and Asia). These include Brookfield Properties in China, Australia, Canada, UK and the US; Blackstone in Australia, Europe, UK and Singapore; and Deutsche Bank in Europe, the US and China.
Examples of European cross-border work in the last year for top clients include advising Blackstone on the acquisition of six logistics and distribution parks in Poland and the Czech Republic from Pramerica Real Estate Investors, and advising TPG on its €3bn (£2.3bn) acquisition of European developer TriGranit.
Key client relationship partners in Europe include Lazar, who acts for AIG Global Real Estate, Blackstone, Deutsche Pfandbriefbank, Heitman International, Morgan Stanley and Starwood Capital Group; and Spain’s Jesús Varela, who has acted for RBS, Crédit Agricole, Deutsche Pfandbriefbank, Santander, Caixabank and Natixis.
The 36 single region clients that Dentons’ real estate team advises include AEW Europe, Barclays Bank, Aviva Investors, China Development Bank, Network Rail and Taylor Wimpey. There is clearly room to develop some of these clients internationally, although Network Rail and Taylor Wimpey are unlikely to yield enormous amounts of cross-border work.
Furthermore, according to TheLawyer Market Intelligence (LMI) on Taylor Wimpey’s national panel, Dentons is competing against six other firms, including the recently merged Gowling WLG, Osborne Clarke and Eversheds. It is expected to be the same situation with Network Rail’s infrastructure panel, with it competing against Addleshaw Goddard and Eversheds.
Despite having the highest number of real estate fee-earners, Dacheng produced only four reported client wins, all in 2014. These are worldwide luxury hotel chain Frasers Hospitality, holding company Cheung Sheng Development, real estate developer Shanghai Pengxin Group, and luxury condo developer 421 Kent Development.
Although the real estate figures released have yet to support the firm’s public claims, Dentons has performed better than expected on internal referrals to and from China, according to Andrew.
The firm won the majority of its new real estate clients in 2014, when it gained advisory roles for 19 known companies. In regional terms, the UK gained the most, with new names like Taylor Wimpey, Royal Mail, Kier Group and Network Rail added to the advisory list.
The UK was also the overall winner in client attraction during the past three years, with 15 new advisory roles added to the slate.
A good example of UK success was the disposal of a £1.2bn portfolio of Holiday Inns and Crowne Plaza hotels in the UK owned by a consortium led by the Lehman Brothers Real Estate (LRG). In March 2015 Cerberus Capital Management paid £225m for part of the portfolio and another part as sold to Kew Green for £70m. A large team in London and Milton Keynes acted on the deal, advising on all of the real estate aspects of the transactions, leading on from the firm’s advice to LRG in 2013. Dentons UK real estate partner Simon Masri led on the real estate aspects of the deal.
According to Dentons, the UK real estate market is important to its global strategy because of the presence of many international companies in the market and the referral opportunities to other parts of the firm.
Despite working on global deals such as the £400m development venture of Canadian pension fund HOOPP in Doncaster, or the £260m Karlin Real Estate UK asset sale last year, the firm’s global brand perception problems persist in the UK.
“We don’t see them much in real estate,” a UK real estate partner from another global firm claims. “I think their international strategy is very ambitious. I know they do good stuff but not in real estate.”
The centrepiece of the firm’s strategy may be to attract more cross-border work, but not all in-house counsel are buying. One, from a company that gave work to Dentons in the last couple of years, cannot seem to recall why he put the firm on the company’s advisory roster in the first place. “I don’t really use them,” he says. “I can’t really remember the last time I used them. They don’t even hit the radar with me any more.
“I meet a lot of firms that will try to sell themselves on the cross-border capability and a lot of the deals that we do are on a cross-border basis, but we normally use the firms that are in different countries and which work together.”
A longstanding real estate cross-border client of Dentons told The Lawyer that it has a “neutral view, not particularly amazing” of the firm. “There’s not much relationship,” the client claims. “Yes we’ve used them on some real estate finances. If we’re going for a multinational deal we’d use them. They do a perfectly capable job, but not to the extent that it differentiates them from the competition.”
However, a Dentons partner who joined the firm last year and has a portfolio of international banking clients, says the firm’s branding allowed the firm to maintain spots on existing panels despite cuts. “We now have a credible story to offer clients to operate on multi-jurisdictional transactions,” he says.
According to Andrew, the firm measures referrals between partners across its entire network on a weekly and even daily basis. The tracker allows the firm to measure whether the amount of work expected is going out. These figures are confidential, but The Lawyer understands that partners are sent headline figures to showcase the amount of referrals as an “incentive”.
Although Andrew says global referrals have “surpassed expectations” so far, data provided for the real estate practice does not quite back his claim. In fact, the key practice has yet to produce tangible evidence of cross-border co-operation between the firms it has merged with.
The Lawyer found no evidence of large numbers of clients wanting to hire a single global firm, suggesting that Dentons is unlikely to generate much work involving many of its jurisdictions and will continue to rely heavily on single jurisdiction work despite its geographical breadth.
While Dentons has expanded its headcount in regions it considers key to its strategy, size does not equate success, and without proof of many more global referrals, the firm has a long way to go before it can silence naysayers.
Dentons is at the start of a long integration process on an unprecedented scale for the legal market. Without its partners’ co-operation it will mean game over.
Additional reporting by Joanne Harris and Yun Kriegler
