We are used to seeing articles involving Am Law 200 firms who raid each other for lateral partners. We might be seeing the beginning of a new development—international firms, especially those based in the UK, joining the lateral partner fun. The news of Allen & Overy’s entry into the Boston market has largely flown under the radar, but it merits further analysis.
The basics of the deal are straightforward- Allen & Overy is opening up its Boston office after lateralling five partners from Goodwin. The partners work in IP litigation and related fields and together will establish a U.S.-based Life Science practice.
The potential upside of this move for Allen & Overy is clear. Boston is perceived to be one of the centers of healthcare law and life sciences. Goodwin is definitely a name in that market, so if Allen & Overy wants to get noticed, especially in the Boston legal market, they undoubtedly have succeeded.
But at what cost?
It is already well-established that law firms have tended to overpay for lateral partners. They tend to overestimate the extent to which their book of business is portable. In addition, when lawyers move together in groups, such moves are more likely to command a premium. If one assumes that the five partners moving to Allen & Overy have a collective book of business in the neighborhood of $10 million or more, it is likely that A&O paid a whole lot. And the compensation costs associated with such a move are on top of the costs of opening up an office in a Class A building and potentially entering into a long-term lease. It is safe to presume that this constitutes an investment in the tens of millions of dollars over the next several years.
There are good reasons to be skeptical about the long-term prospects of such a move. Large law firms have struggled to keep lateral partners; once lawyers leave one firm it is not uncommon for them to move again within a few years. Lawyers also tend to underestimate the importance of firm culture when they make a lateral move and Americans are less used to this than their European counterparts with interacting with professionals from other countries. There is a good possibility that Allen & Overy paid through the nose and won’t be able to recoup their investment. And if one or more of the partners hits it big, one of the very biggest US firms could swoop in and convince one or more of the five partners to return to their American roots.
However, if this move turns out for Allen & Overy, it is clear that very few international firms can afford to re-create this strategy. Hiring laterals and entering into long term leases are beyond the reach of all but the biggest and well-heeled international firms. Most international firms must therefore adapt to a world in which having a relationship with a U.S. firm as part of a consortium is a lot less effective or impressive than it once was.
There are a lot of moving parts here, but it appears that it will be more important for mid-sized U.S. firms to become more aware of what the biggest international law firms are doing in the U.S.