Kent Zimmermann of Zeughauser Group on Law Firm Merger Insights
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Here are some highlights of my interview with Kent Zimmermann:
When considering global dominance, non-US law firms cannot avoid the US market.
Successful deals usually come when the two firms have shared strengths and shared aspirations for the future.
Journalists are often happy to discuss an idea or connect with others who would help in their effort to create content.
Changes in Washington have brought about extensive work for firms and many have never been busier.
The Resilients acted sooner and with more alacrity in advance of downturns and came out stronger. [see linked McKinsey article below]
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Greetings friends, this is Chris Batz, your host of the Law Firm Leadership podcast. Thank you for your patience these past several months as we planned and recorded episodes for season two. There are currently nine episodes in the queue and we’re excited to share them. Season two will have an emphasis, but not exclusively, on Midwest legal executives and also a continued exploration of attorneys and executives at the crossroads of legal technology. Today, I have the pleasure of bringing back a legal consultant to the show as we discuss law firm mergers, travel tips and relating to reporters.
Just a reminder, the PDF transcript of this audio is available to download. Go to LionGroupRecruiting.com/podcast.
As many of you know, we interview corporate defense, law firm leaders, partners, general counsel, and legal consultants. You’re listening to episode thirty of the Law Firm Leadership podcast.
Chris: Welcome to the Law Firm Leadership podcast. I’m your host, Chris Batz with the Lion Group. Today I have the pleasure of speaking with Kent Zimmermann of Zeughauser Group. Kent advises on active merger discussions and firm-wide strategy. His current claim roster includes three Am Law 25 firms. During his 2018 year, he advised on three large law firm deals. Before being a consultant, Kent was one of three equity partners who developed a small startup called Hubbard One, which was sold to what is now known as Thomson Reuters. Following the sale, Kent led the turnaround of West Legalworks, also a unit of Thomson Reuters. He graduated with honors from Washington University in St. Louis and earned his JD from Illinois Institute of Technology Chicago Kent College of Law. Welcome Kent back to the Law Firm Leadership podcast. It’s great to have you on the show again.
Kent: Hey Chris. Good to be back.
2018 Law Firm Merger Insights
Chris: So much has happened in law firm world as far as mergers are concerned. The most recent article that really sums up your activity are the three deals that you were a part of in 2018, so Foley & Lardner and Gardere, Hunton Williams and Kurth, Bryan Cave Leighton and Paisner. Can you give us a little bit of color to how and why they came together?
Kent: I think everybody who is involved in the industry knows that the industry is consolidating. Every industry goes through a period of consolidation. It’s the time for legal to consolidate. Today, the market is still highly fragmented meaning even the largest law firm in the world has less than 4% of the market share that’s addressable, so there are miles to go for more consolidation, but we’ve seen a lot recently including the three deals that you mentioned that I was involved in.
Each firm has its own reasons for considering a combination. Most often those that are thoughtful about it have a strategy that articulates what the firm aspires for its future and what it wants to be known for. In other words, firms will size up, “Does combining with another firm help us get to where we otherwise already wanted to go whether or not we merge with another firm.” Of course, there are competitive drivers, competitive with respect to talent, clients, macroeconomic developments and geographic cross-border capability considerations for some firms.
Chris: You had mentioned to me that Leighton Paisner over in the UK approached you about US growth plans. Why was Bryan Cave a good fit for that from your perspective?
Kent: I advised BLP in the lead up to their deal as they considered growth in the US. BLP, like many firms, has a very thoughtful well-articulated strategy. They’re known for excellence in a number of areas. Many would put at the top of that list real estate and real estate finance. They historically have had one of the preeminent practices in that area, not only in the UK but in many areas in which they’ve chosen to focus.
For BLP and really for any firm outside the US, when you think about being dominant globally in areas of focus, it’s hard not to think about growth in the US just because half the world’s money spent on outside legal is spent in the US. It’s by far the world’s largest market for legal services. You look at the decision that BLA made when it first came into existence. You look at Hogan Lovells, Womble Bond Dickinson, Eversheds Sutherland. The US is a big draw because of the amount of money that’s spent here. Also, the rates are very attractive here compared to many parts of the world. The future is bright for the US legal market.
We have a very strong plaintiff’s bar here. The US has certain jurisdictions that are known as hellhole litigation jurisdictions. East St. Louis or, historically, East Texas, are examples. They’re known as hellhole litigation jurisdictions largely because juries can award large sums of money there in cases, so defendants, they think of them as hellholes.
Well, the US relative to the rest of the world is essentially the world’s hellhole litigation jurisdiction because in the US we have jury trials, punitive damages, travel damages, but we rarely have loser pay rules. That’s why when a plaintiff can drag a deep-pocketed defendant into court, if there’s any way they can do it in the US, they’re going to choose that compared to many other places in the world. For example, that’s why the VW emissions case didn’t happen in Germany. It happened in the US because the plaintiffs knew that they could do better here in all likelihood than in Germany. That’s why there will be many more of those deals here, trans-Atlantic, trans-Pacific and from other places in the future.
Chris: Where are you being drawn to for your matters right now?
Kent: We’re working on a series of potential deals right now. The largest pipeline I believe that we’ve ever had in our history. Some of it is domestic, some of it is cross border, some of it is trans-Atlantic, some of it is trans-Pacific.
Some of those deals are ones where we’re representing firms that are interested in combining with a larger firm, enjoying the scale and the increased profile, and more depth in their areas of focus and more resources that a large firm brings to the table. In other cases we are working with larger firms that are interested in finding smaller firms to combine with to extend their strengths and given geographies or industry sectors or practices. In some cases we’re working on mergers of equals involving Am Law 100, 200, global 100 firms.
I also work on pure strategy. In a nutshell, that strategy work involves building consensus among the partners about what their aspirations are for the firm’s future or for a practice group or an office’s future and what it’s going to take to achieve those aspirations, developing a plan to get there. Sometimes that strategy work leads to merger work because as the strategy is built out there’s a view that the possibility of a merger should be on the table to achieve the strategy. In other cases that’s not of interest and the strategy work is separate from merger work, so varies from firm to firm.
The Making of Successful Law Firm Mergers
Chris: From your perspective knowing that many don’t work out, what are the top reasons deals work vs reasons why these deals do not move forward?
Kent: We find that in successful deals there’s usually at least two common threads. The first is that the two firms have shared strengths. In other words, they’re both really good at some of the same things, whether it’s being preeminent with respect to a given industry that the two firms serve or really strong in a practice area that both firms have chosen to focus on or a geography that both firms focus on or maybe a combination of those things.
Parenthetically I would say the knee-jerk reaction of some people we work with is the opposite of that sometimes. Our experience is shared strengths is step number one. Great if you can also fill in each other’s gaps in some respects, but shared strengths is important because when you’re able to have shared strengths, you’re able to create more high-quality depth in chosen areas of focus, which distinguishes the firm more. Usually creates a longer deal list or longer list of trial wins. It helps differentiate the firm from others who are trying to do the same thing, both with clients and talent. You’re able to essentially create a dream team.
Then number two is shared aspirations for the future. Shared strengths, shared aspirations we find are important to a successful deal. When those things don’t exist, that can challenge whether or not a deal makes sense.
To be successful one of the most important things that we would look at early on is culture. Generally, we’ve observed over the years that in firms where there’s a feeling that the way the money is split up among the partners, where there’s a feeling that it’s split up fairly, those firms tend to have stronger cultures. Then we also look at to what extent are partners in the two firms that are contributing similarly are paid similarly. We also look at the extent to which the values of the partnerships are shared. We look at the extent to which there’s incentive to collaborate and actual collaboration, the extent to which partners work together to pursue clients and to serve them across practices, across offices. All of that is telling about culture usually.
Usually the two firms need to have financial performance that is in the same ballpark. If they don’t have similar financial performance, usually that would mean that if there is a much lower performing firm of the two, that firm usually not all of it would be desirable to the high performing firm. That would usually be something very early on to work out.
Expectations on contribution of capital across the two firms would be something to look at, how they approach governance and management is important, their comp systems and the extent to which they can be integrated is important, down to the things like the name of the combined firm is obviously going to be important, the leadership of the combined firm. Those are some things that are relevant.
Chris: Is it safe to assume that you guys have an outrageous database of information on these firms
Kent: We do have a lot of data on the market and on firms we work with. We find there’s no substitute for two firms getting to know each other, both in conversations with each other to explore whether there’s value in combining, but also to explore elements of a deal, like the ones we’re talking about. Then also, there’s an exchange of data between the firms that we typically would facilitate, review, comment and make recommendations on. Often we find it’s helpful to get input from formal and informal leaders in one or both firms about their aspirations and what it’s going to take to achieve them with respect to things like comp, governance and other topics that are important in deals.
The data is helpful from the industry and from specific firms. Benchmarking data that firms have compiled by banks they work with are often helpful. But part of it is discussion about these topics and comparing data that’s relevant and finding ways to bring the two firms together using best practices for how that’s been done before in deals that we and others have worked on.
Chris: Have you totaled up how many miles you’ve traveled in your career or at least in the past 12 months?
Kent: I don’t think I have, but it’s a lot. The travel is intense, but it kind of goes with the territory. The mergers we work on are often once in a lifetime for the people who are leading them at the firms. We are talking about firms that have been around for dozens if not one-hundred plus years that are thinking about combining with each other. It’s a very big deal and important to them. They expect us to be there in person a lot of the time. We’re happy to do that.
3 Tips for Avoiding Travel Burn Out
Chris: Would you have any tips for those who may be stepping into more travel or who do it and could learn from you?
Kent: A few years ago, I was feeling burned out on the travel. I thought to myself, “Some days are better than others on the travel.” I was trying to think about what made the better days better and was there anything to learn from that. I realized that the better days usually involved days when I was upgraded to first-class on the flight, taking a black car to the airport, and staying at a comfortable, good hotel.
Then I thought about the fact that our clients are happy to reimburse us for travel. We usually ask for reimbursement for coach-level air and the equivalent for hotel and ground transportation. I was thinking about the delta in cost between coach and first-class, whether it was for a flight or for a hotel or for ground. I realized I could just pay the difference and book in first-class, always use a black car and always stay at a nice comfortable hotel. That has been one of the best decisions I’ve made to make travel manageable. I rationalize it as I’m not going to burn out on the travel as a result and I can do this work that I love for years longer.
How to Develop Relationships with Reporters
Chris: You’re also very visible in the news and the media. What is your advice to attorneys or legal industry executives on being quoted in the press?
Kent: I have found that it’s been very helpful for my career to be visible in the media. I find that journalists often have a lot of pressure to create content. They’re happy to have resources to help them think through what they want to write about and to get to people who can help in that effort.
For me, I’ve developed relationships with people who cover the business of law. I’ve done that by being visible on Twitter and on LinkedIn. I find that reporters are power users of Twitter and so make sure to follow everybody who covers the business of law to see what they’re writing about. When I am on Twitter and LinkedIn, often it’s not so much the content of what I’m saying or posting, but it’s the visibility of being on there. That’s helpful to stay top of mind with reporters so they think about you when they’re writing a story that you might be able to help with.
I find that being highly responsive to reporters when they call helps a lot. Then I think just being helpful to them, not always to get your name in the paper. Sometimes they want to interview you on the record, but other times it’s more helpful to them if you could give your take on something to explain and give context to a story they’re working on or to point them to people in firms or in other places that will be good for them to talk to given what they’re writing about. I’ve found having good relationships with reporters has been good for our business.
Chris: You’ve been on TV quite a bit and I’d love to know how that happened for you?
Kent: In my case, I had an interest in TV news as a kid and interned growing up at the local CBS affiliate in the town where I grew up. Then my first job out of college was producing TV news. It was during the time of the OJ Simpson trial, so we had a half-hour daily live show at a local station in St. Louis, where I went to college. Then I ended up going to law school and didn’t go the TV news route but I had always wanted to get back to it somehow.
A while back a friend of my wife’s, who anchored the morning news on the NBC affiliate in Chicago, said, “You should come on some time and talk about legal cases.” Celebrity legal cases are what she had in mind. I did that some on the NBC affiliate in Chicago. I ended up getting a call from somebody at a network at Fox News and they asked if I would come on. Then I got calls from HLN and from NBC News and others.
It brings me back to my days doing high school debate team to be given a topic and to go head-to-head with somebody in front of a national audience. It’s a rush and it’s fun. I haven’t done as much of it recently because I’ve just been working and traveling so much I haven’t had as much time to do it. For some people, it’s a great outlet and certainly helps with profile-raising.
What’s Changed: A Reflection of 3 Years Ago
Chris: Jumping into another subject, you and I had a conversation three years ago when we touched on a couple of different points. I’m going to mention a word or a phrase and you give me a quick update. First one, Brexit.
Kent: I’ll tell you that a new prime minister was obviously elected this week in the UK, big Brexit supporter. For legal, I think that London is going to be an extremely important legal market for a long time. Certainly it’s the center of international arbitration. I don’t think that’s going to change. I also think it’s going to be important for other industries too. At the same time, many law firms are hedging their bets and investing on the Continent in Paris and Frankfurt and some other places, so we’ll see how it plays out.
Chris: Yeah. Here’s another one for you. Election results.
Kent: I think for legal, change in Washington is generally a good thing. There’s been extensive change in Washington since the current administration came into the White House. You’ve seen whether it’s antitrust investigations, like the ones that were announced in the tech sector recently or other regulatory enforcement actions, trade-related disputes, there’s been a lot of action for law firms and that spans many practices, many industry sectors, and the government affairs folks at many firms have never been busier.
Chris: Another one is current economy and law firm leadership outlook.
Kent: My sense is that the outlook has dimmed a bit from last year. Last year all of the data available suggested that it was the best year for legal since the financial crisis. At the same time, the rate of growth on many key metrics was not close to what it was pre-2008 last year. Even though it was a great year for the industry overall and even though we were ten-plus years into a strong economy, many firms did not have a great year last year.
But my sense on the data and just anecdotally talking to chairs of firms, this year’s not going as well for many firms as last year did. Particularly for the larger firms, I’d say it’s a mixed bag. Deal flow has decreased, especially large deals. At the same time, some firms outside the Am Law 50 and some even outside the Am Law 200 are reporting very good years, which is consistent with prior periods of time when the economy was starting to soften. Sometimes it was a flight to lower rate options and also when the flow of large deals flows down, often that hits firms that do those deals hard. I think the outlook is so-so.
The one last thing I’d say on this topic is that there was a McKinsey piece that I read recently that talked about how hard it is to predict when a downturn is going to happen. But then it looked at a group of companies that had weathered prior economic downturns well over time. They called those The Resilients. One thing The Resilients had in common according to this McKinsey article was that they acted sooner and with more alacrity in advance of downturns to strengthen themselves and get lean so that they went into downturns stronger and came out the other side stronger. Getting strong, addressing overcapacity and other things that weigh down the performance and doing that in advance of the downturn is going to be helpful for many firms.
Chris: We also talked about Dentons and the race to 10,000 lawyers. What’s your take on that now?
Kent: They made it over 10,000 lawyers. I personally think what Dentons is doing is unbelievably impressive is my own take. I think if you look at the top 100 brands in the world starting with Disney and Apple, you won’t see any law firms on that list, but the big four are all on that list. I would predict that Dentons may become the first law firm to make that list. They are building market share and scale. Their profile is growing too. This is to take nothing away from the other global firms that have their own strategies and are executing on them very impressively.
Chris: What is your current take on the single most important characteristic a future managing partner or chairman should learn or have?
Kent: I think to be an effective chair or managing partner in a law firm you’ve got to check a number of boxes. One thing is you need to have credibility with your partners, particularly to make hard decisions that are going to benefit the firm. In most law firms that means you need to be perceived as an excellent lawyer on the substance. You also need to be perceived as highly effective and productive at generating business for the firm.
Then beyond that, it’s important to have the ability to create a vision for the future so that you could create a followership and lead your partners towards the achievement of the vision. I think it’s important to have strong EQ and be able to be a good listener. Also be able to have difficult conversations and make choices that are in the best long-term interest of the firm, but that may be culturally very difficult to make, like asking chronically underperforming people in practices and offices to leave the firm where that’s necessary to allow the firm to get to where it wants to go long term.
Chris: Pivoting to more personal topics, Kent, what does vacation look like for you?
Kent: I think vacation’s really important for me and for a lot of people. It helps me be able to keep up an intense pace by taking a break here and there. I often still will have to do some phone calls and things for projects that are at an intense stage and no time to pause kind of thing, but try to recharge when we take a vacation.
Chris: Kent, it’s been an honor and a pleasure thank you for your time today.
Kent: Oh, my pleasure. Thanks for having me.
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