‘We want to use this combination to forge a new global elite,’ Herbert Smith Freehills (HSF) CEO Justin D’Agostino tells Legal Business as he discusses the firm’s ambitious merger plans with New York’s Kramer Levin.
Heralding the planned union as ‘the first real transatlantic and transpacific merger’, D’Agostino stresses that the deal offers ‘a winning trifecta: global disputes and global transactions on day one, a high-quality US law firm, and alignment over ambitions for growth.’
With partners expected to vote on the union in February, and the deal set to go live only a year after HSF first approached Kramer back in May 2024, D’Agostino is clear that the merger represents an immediate leap forward for both firms, with more ambitious growth to follow.
‘We’ve found a firm whose makeup and strength are identical to ours in a market where we didn’t have it,’ D’Agostino explains.
‘Our twin engines of transactions and disputes set us in a different category of firm. We’ll be very strong in disputes globally, very strong in transactions globally, and then you add the investment.’
‘Put the two firms together, and the market should watch out – this is an exciting combination. And that’s day one, with no investment or tweaks,’ he adds.
Accelerating US expansion
HSF has long been vocal about its desire to expand in the US, which formed a central plank of its HSF Ambition strategy, launched in 2022.
HSF already has a small disputes-led office in New York, but in addition to significantly ramping up its Manhattan presence with the addition of Kramer’s near-300 lawyers, it will also gain a presence in Washington DC and Silicon Valley. ‘This deal gives us three of those [priority cities] immediately, but the real prize is what we’re going to build over the next five years,’ he explains.
Both firms are committed to significant investment in the US and next on the agenda is Texas, with an additional merger one potential route to entry.
‘All options for how we launch in Texas are on the table – including another combination,’ says D’Agostino, pointing out the need to strengthen the merged firm’s energy practice in the US.
‘Our energy sector practice is a jewel in our crown, I think we can claim to be one of the world’s leading law firms in that space. Kramer doesn’t have that, but we’ve agreed that we’re going to build it together, which will involve us looking at Texas,’ he continues.
Additional growth priorities include strengthening its private equity practice in New York; expanding the firm’s bankruptcy capabilities globally to align with Kramer’s top-tier US position; and enhancing class actions, antitrust and tech-sector practices in the US, particularly in Silicon Valley.
Once combined, the firm will be one of the largest non-US headquartered firms in the US by partner numbers, according to D’Agostino, who notes that ‘this is a major step for us and gives us a significant advantage’.
‘On 1 May, 25% of the firm’s global profits will come from our three combined US offices. There’s a realistic path to get that closer to 30%, or even a third, over the next five-year window,’ he predicts.
Speculation in the market suggested that the merger might affect HSF’s referral relationships with other US firms, but D’Agostino downplays these concerns, emphasizing the firm’s historically broad relationships in the US.
‘We’ve always had broad relationships in the US, and we’d hope those relationships will continue, as those firms will still want to instruct our firm in jurisdictions where we have leading teams. What’s exciting now is we’ll be able to retain more of the US work we bring in,’ he explains.
Finding the right firm
Speaking to D’Agostino, it’s clear the firm took a very deliberate approach to its US merger strategy that has enabled it to move quickly, working closely with consultants to help it zone in on suitable partners.
‘We decided we were looking for a firm in the $300m-$400m revenue range,’ he says. ‘Often when people think about US mergers, they imagine firms of similar sizes getting together, but that’s very, very difficult to do. We didn’t look for an international firm; we focused on finding a strong US firm with limited or no overlap, and the firm that came out on top was Kramer,’ he explains.
Knowledge of the discussions was tightly managed, with D’Agostino leading the talks alongside chair and senior partner Rebecca Maslen-Stannage in Sydney, executive partner Alison Brown, and senior M&A partner Gavin Davies in London. Reflecting on the secrecy surrounding the deal, D’Agostino admits it wasn’t easy to keep under wraps, jokingly adding: ‘someone messaged me saying they’ll never invite me to play poker.’
Validation of Kramer as the team’s chosen suitor came from HSF New York managing partner Scott Balber.
‘When we ran the shortlist through with Scott, and he pointed at Kramer and said, “That would be an incredible combination” – that was our moment of validation,’ recalls D’Agostino.
From there, ‘it became clear very early on that both sides felt we’d found the right partner. The cultural alignment was obvious, and the joint vision was clear from the get-go, which helped us move at pace.’
Strategic integration
Herbert Smith Freehills Kramer – operating as HSF Kramer in the US – is expected to be financially integrated from day one, operating with a single profit pool and a unified global remuneration structure.
‘This ensures that partners are best incentivised to collaborate across borders and to continue the collegiality that both firms currently enjoy,’ D’Agostino notes.
To support the merger’s success and ensure partner stability, HSF has introduced lock-in measures designed to incentivise retention and collaboration.
While the details of these measures are still being finalised, D’Agostino is confident about the firm’s ability to retain talent. ‘Partners in both firms are committed to pursuing a vision to be one of the world’s leading international law firms,’ he says.
‘Since we announced this, the feedback from clients, commentators, and partners has been enormously positive’, D’Agostino stresses. With many partners in New York set to find out more about the deal this week, partners will next receive detailed information about the union in January 2025, ahead of the February vote.
It’s fair to say D’Agostino is confident about the outcome. ‘This strategy was not plucked from thin air. We’ve been trying to find the best firm to join forces with, and now we’ve found it.’
‘This is exciting – it’s setting the firm up for the next generation and generations to come,’ he says. ‘Our partners can’t wait to get started.’