A new era: Herbert Smith Freehills Kramer

Thank you very much all for participating in this roundtable about the combination. Who came up with the idea and how did you meet?

REBECCA MASLEN-STANNAGE: It had been on our mind as a strategic priority that we really needed to do something in the US, and the partner sentiment within the firm increasingly was in that direction. All around the world, we were being told that we needed significant US transactional capability. Probably around two to three years ago, Justin and I started to engage with the US market in earnest to build relationships, understand the lie of the land, and get into the flow of what was happening there.

JUSTIN D’AGOSTINO: I remember very clearly the buzz in the media surrounding the merger between Allen & Overy and Shearman & Sterling. I said to Bec we need to get ahead of this if we want to proceed. The way I describe it is that Herbert Smith Freehills was the last top tier international firm that didn’t have scale in the US.

So Bec and I jumped on a plane and went to the US to meet managing partners of a number of US law firms. We wanted them to have us in their minds when they were thinking about their strategy. We weren’t thinking necessarily about a combination at that stage, but it was all grist to the mill, useful intelligence. After that trip, we concluded for a number of reasons that our best option for a successful combination would be with a strong US firm in the US $250-400 million range.

There were four US markets that we were interested in, at least initially: New York, Washington DC, Silicon Valley and Texas. Getting a foothold in all these markets would be brilliant, but we would be happy with just one of them.

We hired consultants who identified six or so firms in this $250-400 million market, which included Kramer Levin, and we prepared to meet them all. Then, by chance, we got a call from another consultant who was in touch with the managing partners of Kramer Levin and asked if we wanted to meet them. When we mentioned this to our New York managing partner, Scott Balber, he said if we could combine with Kramer Levin, we would have really struck lucky. This was the validating moment for us. We immediately arranged to meet them, sending out an advance party of Alison Brown and Gavin Davies. They came back very positive.

When you say you wanted to scale up, could you not have done that within the US, as the world’s largest market?

HOWARD: Yes, that is true, but one of the aspects that particularly attracted us to the combination with HSF was that there wasn’t a significant overlap of geographies. That meant that, in the US, we would be able to retain a lot of the feel of the legacy Kramer Levin firm rather than get folded into a large US firm, which would come with all kinds of challenges.

JUSTIN: To be honest, we were also looking for a firm that we thought was real quality, and that is what Kramer Levin provided. They have an elite reputation in bankruptcy and insolvency, for example. They were looking to expand their private equity practice, which is exactly what we want to do. They are a top-tier real estate firm in New York. In fact, we can now properly claim to be the only law firm with a top tier real estate practice in New York, London and Australia.
 

In your due diligence, what did you discover?

JUSTIN: After we’d had a meeting of minds on the vision, our practice groups and managing partners did a lot of due diligence to analyse the synergies. That came out very positively.

We only had one overlap, which was in New York in litigation, as Howard says. This combination is not leading to rationalisation and efficiencies. This is all about growth.

PAUL: What was very attractive to us was to become part of a single firm that was interested in growing in the US and to be able to do that in a smart, strategic way, rather than just squeezing two existing law firms together. For us, the geometry of the two firms and the shared vision of investing in the US was very compelling.

HOWARD: Coming in from different vantage points and playing at the highest level was really what was very attractive to us about the combination. Early on, Justin and Bec put together a really well-done presentation of their vision of the combined firm. That was very persuasive and completely consistent with what we were thinking.

Two things then stood out for me. One was that Justin and Bec had really done their homework. They really understood who we are. Second, their aspirations fit with our aspirations. But we did worry that they had just put their best foot forward. They’ve sent us their most charming and persuasive representatives. What if the others were not like them?

Then you had to do the hard yards of actual negotiation. How difficult was that?

PAUL: Howard and I handled a lot of the negotiation on our side. We were aided by a number of members of our executive team, including some of Howard’s colleagues in the Corporate department who actually did some of the heavy lifting. I will say there were no major stumbling blocks. Everybody came to the negotiating table with the shared objective of trying to work something out that would allow us to do what seemed like such a great idea.

Who did you delegate to be part of the HSF negotiating team?

REBECCA: That was interesting. In the merger with Freehills, I was part of the Freehills team, together with Martin Shakinovsky, and our Herbert Smith counterparts in that negotiation were then Steve Wilkinson and Ben Ward. It made sense to ask Steve and Ben to negotiate this deal, supported by an internal team that also included Clare Wilson, our general counsel, and Alison Brown.

Were there any red lines?

HOWARD: We talked about legitimate risks and concerns about different aspects of the deal and how best to mitigate those issues or to address the issues in a fair way that made sense for both sides. This is not a transaction that you do the deal and never see the person again. You actually have to live with the partners. It was not a zero-sum game. We were building relationships.

PAUL: The key to the entire process was the first principles that we started with, that it really was in the interest of both firms to do the combination. There was a strong level of trust.

REBECCA: There weren’t any red lines. There were shared principles that we needed to test right up front. One of those was that we share profits across our entire international firm. We don’t believe in alliances or Swiss Verein operations. Sharing profits leads to collaboration between partners, making sure that everyone gives their best to the client and everyone puts their best foot forward. The cultures are definitely aligned. We are very collaborative. We chase work together. We work well together. There is a real respect between us. We value our people. It is a very inclusive culture.

Did you have to keep this all highly secret?

JUSTIN: Yes, we did. We had to keep control of the narrative, to keep the partnerships properly informed. As it happened, nearly all of the partners saw the wisdom of the strategic imperative, but we had to do a certain amount of explaining on why we were not going for a merger of equals in terms of size. We explained who Kramer were and why they were a suitable partner. If it had leaked, we wouldn’t have been able to tell that narrative in the way we wanted to, and so we kept it incredibly tight.

PAUL: We were concerned if news of our talks leaked. We did have alternative scenarios for the announcement. We wanted always to be ahead of the messaging. We were lucky it didn’t leak out, except on the very day we announced, but that was because of time differences around the world. New York was the last place to announce. We had to accelerate our town hall meeting with our people by a few hours. But it all went very smoothly.
 

When you put it to the partners, you got a very high acceptance rate.

REBECCA: As Justin says, the real key was that we had done that engagement with partners before we signed the heads of agreement. We had had that opportunity for partners to be brought along on the journey. We didn’t surprise them and they could see that their input had been reflected in what we were putting forward.

HOWARD: There is always a bit of melancholy associated with changing chapters and we’re cognizant of that, but we feel like the firm is in a tremendous position of strength to move forward in a very successful way and very well-positioned for the future in a competitive dynamic market.

All this happened against a backdrop of geopolitical uncertainty. You’ve had the change of administration in the US with many curveballs, to use your expression, being thrown out on issues like tariffs. I just wondered whether paradoxically that kind of plays into your hands, now that you’ve combined or whether this is posing unexpected challenges?

HOWARD: Yes, there have been some curveballs in the US environment and we’re working through those. However, we expect that as things maybe settle down, there’ll be a significant surge of transactions into and out of the US as people regain their footing.

Do you have any funny or interesting anecdotes that emerged from the process of combining?

REBECCA: Actually beforehand, there was one funny moment at a partners’ conference in Bangkok in 2023 when, as we were talking about the US market, behind us on the screen was a large unfurling US flag, and all the partners were expecting us to make a big announcement! So they were a bit disappointed at that time but it was a brilliant backdrop!

JUSTIN: The day before we announced to the partners, I happened to be in South Africa, for an annual ceremony for Prince William’s Earthshot prize, for whom we do some pro bono work. I had a meeting with the partners talking about US strategy, but couldn’t actually tell them we were about to make a big announcement! At the same time, I was recording a video to be released the next day confirming the combination. I had to swear everyone to secrecy, including the cameraman!

PAUL: I don’t have any funny anecdotes, but I will say at dinners that we’ve had in New York, Washington, London with colleagues from around the world, I have always found that the partners sitting on either side of me are excellent dinner company. We always have a good time, and that is very telling.

HOWARD: Justin has also introduced us to an expression, which may be a rugby term, that ‘it’s all to play for’. We are not familiar with that term but have enjoyed using it since! Now, people talk about that all the time. When they schedule a meeting to occur ‘once every fortnight’, we had to look that up, too.

As you reflect on what has been a dramatic turn of events, what are your thoughts?

HOWARD: We’re really excited about the transaction and think that there’s a very bright future for the combined firm.

PAUL: Both firms have a very strong sense of their history and their heritage, and we’re going to preserve that. We will have a shared history going forward, but our legacy, our history, how we got to where we are, is very important to both firms and will be preserved.

JUSTIN: I would close this roundtable by looking forward to what comes next for us. We’ve met our strategic need. We have found a fabulous partner. We’ve got an investment plan for the US.