The Rise And Fall of Bingham McCutchen
What happens to Bingham if the Morgan Lewis deal doesn't go through?
In our last report on the beleaguered Bingham McCutchen, we predicted that its partners would vote in favor of the proposed merger with Morgan Lewis — even if some of them might get de-equitized as a result. Why? Because “it’s not clear that Bingham has better options.”
Talk about understatement. Maybe this is fearmongering to get Bingham partners to approve the deal, but check out what management is saying might happen if this deal doesn’t go through….
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Over at Reuters, Casey Sullivan and David Ingram have a great report on the current state of play, plus a history of Bingham’s path to its current predicament. They write:
What seemed to work so well then isn’t working anymore, and the merger frenzy that generated [the firm’s] success may become the agent of its undoing. Bingham is in talks to combine with Morgan, Lewis & Bockius of Philadelphia in a deal that could be approved as soon as this month, and Bingham could file for bankruptcy if the deal doesn’t go through, management has told people at the firm.
I never did transactional law, but saying “we might go under” strikes me as unhelpful for Bingham’s bargaining power vis-à-vis Morgan Lewis. On the other hand, presumably the diligence process is revealing to Morgan Lewis exactly how dire Bingham’s straits actually are.
What brought Bingham to the brink? One former partner’s take:
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“For a law firm to grow successfully and healthily, it needs to not only acquire the talent, but it needs to integrate it, respect it, nurture it, and bring it into its culture in a smart way,” said Marshall Grossman, who left Bingham in January for a rival firm, Orrick Herrington & Sutcliffe. “It’s in the execution where Bingham failed.” Bingham acquired Grossman’s firm, Los Angeles-based Alschuler Grossman, in 2007.
Dewey know where we’ve seen that toxic combination of overexpansion and underintegration before? And here’s another similarity between Bingham and dearly departed Dewey & LeBoeuf:
Bingham also made liberal use of guaranteeing millions of dollars in annual compensation to some newly acquired lawyers, the people said. The payouts can hurt a firm’s balance sheet and cause resentment among lower-paid lawyers.
Here’s a difference between Bingham and Dewey — one that actually doesn’t count in Bingham’s favor:
Bingham also didn’t require its partners to contribute cash upon joining the firm. At many U.S. law firms, capital contributions help glue partners together. Like many other firms, Bingham borrowed money from banks. Its lenders include Citigroup and Bank of America.
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At least Dewey required its partners to kick in capital (as we know from litigation between former partners and the banks that lent them money for capital contributions). Bingham doesn’t even have that (thin) glue to hold its partners together. Laterals can leave at any time and not have to worry about their capital being returned to them in dribs and drabs (a growing trend in Biglaw: providing for slower return of capital to partners that defect).
Back to similarities between Dewey and Bingham. As Bingham grew, acquiring a new firm every 14 months on average between 1997 and 2009, transparency declined:
After Bingham acquired McKee Nelson, some lawyers were paid between $4 million and $5 million a year, sources said. That was at the very top of Bingham’s compensation system.
If a lawyer wanted to see the compensation of a colleague who came on board from McKee Nelson, he or she had to make a special request of management, a former Bingham partner said. Other lawyers’ pay was viewable on an internal firm web page, and the difference in transparency bothered some partners.
Recent events have been Dewey-esque as well: defecting partners, lawyer and staff layoffs, cuts in compensation, delayed bonuses, and all the rest of it. As Michael Allen of Lateral Link told Reuters, Bingham was “in the driver seat, and now they’re the one in the passenger seat. The industry lesson is: Don’t over-commit. They bit off more than they could chew.”
Good luck to Bingham as it tries to save itself from ending up like roast LeBoeuf — and good luck to Morgan Lewis in digesting Bingham if the merger does go through. As the case study of Bingham teaches us, it’s the integration, stupid.
Bingham lawyers who grew through mergers face undoing by merger [Reuters]
Earlier: What Needs To Happen For the Bingham / Morgan Lewis Deal To Proceed
Law Firm Merger Mania: Bingham McCutchen And Morgan Lewis Reach A Deal
