Stroock Seeks Merger Deal to Fend Off Worst-Case Scenario

Stroock & Stroock & Lavan has for months discussed possible mergers with other law firms, amid partner departures that risk threatening any deal and jeopardizing the firm’s future.

Manhattan-based Stroock has been publicly linked to merger talks since a group of more than 40 lawyers left its strategically important restructuring practice for Paul Hastings more than a year ago. The firm has more recently seen exits from its intellectual property, private wealth and consumer financial services class-action practices.

The American Lawyer last week reported that Stroock plans a merger with Nixon Peabody in the coming months. Two sources familiar with the situation confirmed that the firms have discussed a tie up, but said there is no agreement in place.

The firms declined to comment on specific merger talks, although each acknowledged generally that they have explored opportunities for growth.

Stroock is “talking to individuals, groups and firms every day,” the firm said in a statement, adding it would announce a strategic combination or another arrangement “as appropriate.”

Stroock also has engaged in merger talks with Steptoe & Johnson, McGuireWoods, and Squire Patton Boggs, according to two sources familiar with those discussions. Those firms declined to comment.

The departure of prominent partners is arguably the biggest risk to any law firm engaged in merger discussions. More exits at Stroock, especially from its top real estate practice, could make the firm less attractive to suitors.

Law firms have limited options to keep partners from leaving after merger negotiations become public, and departures that “snowball” can cause firms to go bust, said James Jones, a senior fellow at the Center for the Study of the Legal Profession at Georgetown University Law Center.

“Firm leaders should communicate transparently with their key partners to convince them that it’s worth staying to give you a chance to negotiate a deal for the entire institution and that it will benefit everybody,” said Jones, who served as managing partner at Arnold & Porter for nearly a decade. “It’s a really, really hard row to hoe.”

Departures Trigger Merger Talks

Founded in 1876, Stroock is best known for two practice groups: restructuring and real estate. The practices often provide a counter-cyclical balance: When real estate is down, restructuring picks up, and vice versa.

The firm’s headcount dwindled by more than 20% since 2010, down to 238 lawyers in 2021, according to AmLaw data. Its $274 million in gross revenue in 2021 made Stroock the 128th largest firm in the country by that measure.

Stroock’s restructuring pillar came unglued in March last year, when a group of 40 lawyers left Stroock for Paul Hastings. Kris Hansen, Stroock’s restructuring practice chief, was among the 18 partners who jumped ship.

The group generated more than a quarter of Stroock’s 2021 revenue, Reuters reported shortly after the move, citing the firm’s chief operating officer.

Hansen secured a lucrative position advising the creditor’s committee in the bankruptcy of crypto exchange FTX Ltd., shortly after the group left for Paul Hastings. The role has generated more than $8 million in fees for his new firm in just three months, according to court filings.

Stroock responded in July last year by adding a four-partner team of restructuring lawyers from bankruptcy boutique Luskin, Stern & Eisler.

The firm’s real estate practice so far remains largely intact. The group, co-led by Jeff Keitelman and Brian Diamond, has advised on major commercial real estate transactions, including a 12-year project representing The Port Authority of New York and New Jersey in the redevelopment of the World Trade Center.

Stroock has seen groups of partners from other practice areas depart in recent weeks.

A total of 10 class action and regulatory attorneys focusing on consumer financial services joined Morgan, Lewis & Bockius, while three private client lawyers departed for McDermott Will & Emery. Schulte Roth & Zabel in April hired a five-lawyer group of Stroock intellectual property litigators.

Last week, two insurance litigation partners departed the firm’s Miami office, though it’s unclear what firm they’re joining. Those partners could not immediately be reached for comment.

“Growth is our number one priority,” Stroock said in the statement. “Scale is undoubtedly important in the legal industry.”