Dentons’ New U.S. Strategy Poses Alternative for Growth

Dentons’ bid to become one of the largest U.S. firms by tying smaller firms into a national legal entity could be a workable alternative to a more traditional law firm merger.

Dentons US this week announced it would be combining with two regional American firms, to create Dentons Bingham Greenebaum, in Indianapolis, and Dentons Cohen & Grigsby, in Pittsburgh, effective in January.

The model, which the firm has dubbed “Project Golden Spike,” after the final piece in the U.S. Transcontinental Railroad, is a nontraditional move, but one that could resonate with other firms looking to build up a presence, industry watchers say.

Regional and local firms which join Dentons US in the future will brand themselves with the Dentons name.

The entity provides shared services like administration, insurance, and technology to participating firms, which can tap into the broader Dentons network of legal expertise. The smaller firms which join will continue with their own leadership, governance and compensation schemes.

“It makes sense and appeals to economic interest to bring these local and regional firms onboard,” said William Henderson, a law professor at Indiana University Maurer School of Law, who studies the legal market.

“It has risks but opens up possibilities for firms which are not likely to get a call from Jones Day or Skadden Arps to merge with them,” Henderson said.

“Many of these smaller firms have a touch point in Asia or South America, and a whole range do business with companies with connections in China,” added Henderson. “Some [of the smaller] firms will not be interested, and others who might want to look beyond the next five years will see this as an opportunity.”

Joe Andrew, Dentons global chair, said the firm is in talks with six other U.S. firms, and expects to add more to Dentons US starting next year. Lawyers will be partners not only in Dentons US but also in their own firms, similar to how Dentons works overall with its 181 offices in 73 countries.

Andrew said Dentons had been searching to devise an alternative to conventional mergers, which can be fraught with problems such as conflicts over clients and compensation levels.

“Mergers are actually hard because they are all about relationships and rates,” he said, “and clients just want good work and to be charged less. We decided to come up with a new model to address those issues.”

Mergers are not for every firm, agreed Jeffrey Lowe, managing partner and global practice leader at Major, Lindsey & Africa. “They can be difficult to achieve, as we saw recently with the end of talks between Allen & Overy and O’Melveny & Myers, and they can be impossible to unwind if they don’t work out.”

The Dentons model is “a viable alternative,” said Lowe, although he noted that undoing such a combination could also be difficult.

“The world is shifting, though, and firms can’t keep on as if it’s the 20th century.”

One of the pitfalls of a merger or combination is maintaining quality of legal services. Both sides have to be vigilant but any such consolidation “is a leap of faith,” Lowe said.

Including Dentons in each firm’s name is “an effort to deal to brand on a firmwide basis to emphasize that clients are getting the same level of quality, and the same level of client service,” said Jim Jones, senior fellow at Georgetown Law’s Center on Ethics and the Legal Profession.

Dentons’ approach steers clear of the traditional law firm expansion model of adding offices. Firms have expanded recently in hot legal markets like Boston, Silicon Valley and Texas. But that’s an expensive proposition, and one that has been done more sparingly after the 2008 recession.

At the same time, firms are seeking ways to shore up their finances in the face of competition from rival firms, alternative legal service providers, and expanding corporate law departments. This is not to mention interest from the geographically diverse Big Four accounting firms in expanding into the U.S. legal services market.

Other firms are also trying models that allow them to be both national and local. Gordon Rees Scully Mansukhani, a commercial litigation firm founded in San Francisco, said in April it had offices in all 50 states, and was the first firm to do so. Its more than 900 lawyers in nearly 70 offices provide clients with access to approved local counsel in legal matters that can span a number of jurisdictions.

Dentons has larger geographic aspirations, aiming to expand to the top 100 markets in the United States, Andrew said. Dentons US will start with firms in 33 markets, including nine of the top 10 markets and 14 of the top 20 markets. It will have about 1,100 lawyers in the United States.