Editors' Blog

Heller’s familiar fate

Posted 25/09/2008 by Alex Novarese

They may not be quite as flaky as their banking counterparts, but news this week of Heller Ehrman's dissolution is a reminder that US law firms can be surprisingly vulnerable institutions.

Heller's closure follows a pattern familiar from other US collapses of the noughties; among them Brobeck Phleger & Harrison, Coudert Brothers, Altheimer & Gray and Testa Hurwitz & Thibeault. The end is often preceded by streams of partner departures, falling profits and – the real giveaway – failed attempts to attract white-knight merger partners.

In some cases they even tried the same knights, with Heller having recently attempted to secure a deal with Baker & McKenzie, much as Coudert did in the summer of 2005 just before it gave up the ghost (Baker Mac’s white-knight status must now be well and truly revoked). And there will be a sense of deja vu for the Brobeck lawyers that jumped ship ahead of its demise to the then sturdy deck of Heller.

In such unstable times, it seems tempting to draw comparisons with stricken banks. After all, these are institutions are undermined by accounting issues (cash accounting makes it easier for senior lawyers to move), falling confidence as partners desert and, as the end draws near, pressure from creditors. But, essentially, it is greater client mobility in the US that tends to leave such firms vulnerable to breakups. In Blighty, we prefer our firms to fade away for years until no one notices their fate anymore.

There were additional factors at the 118-year old Heller, once one of San Francisco’s most venerated law firms and until very recently a top 50 US practice with international ambitions. In particular the firm’s attempts to convert a singular culture focused on quality and collegiately into a more profits-driven outfit plainly faltered. And the firm found itself positioned awkwardly between national/international status and regional reader scale.

Rivals are now predictably queuing up to take out teams, with Mayer Brown, Bakers, Cooley Godward Kronish, Morrison & Foerster, Fenwick & West, Wilson Sonsini Goodrich & Rosati and Morgan Lewis & Bockius among those reported to be in play.

Rivals are now also looking to Heller’s international network from which Eversheds has just hired the US firm’s Asia chief, Nick Seddon, to secure its Hong Kong launch. In London, the practice launched by Heller in early 2007 is being sized up a wide array with Morgan Lewis, Proskauer Rose, K&L Gates and Vinson & Elkins all having shown interest.

Interestingly, there have been claims that Cooley, one of the West Coast’s top firms and nationally-credible after securing a well-executed merger in New York two years back, is interested in taking on the office to make good on its long-mooted City launch. West Coast rivals Sheppard Mullin and (more of an outside bet) Palo Alto legend Wilson Sonsini have also been named as firms that could use Heller’s fate to secure an opportunistic UK launch.

Whatever the outcome, this has a long way to go. We’ll be following the story as it breaks on both sides from the Atlantic.