The number of completed law firm mergers in the second quarter of 2020 was on par with prior years, but the ongoing COVID-19 pandemic will dramatically impact the number of mergers in the second half of the year, according to a consultancy tracking mergers.

Overall, the number of mergers completed in the first half of 2020 was down compared to last year and the 10-year historical average, according to Fairfax Associates. So far in 2020, the law firm consultancy has tracked 26 completed mergers, which is down from 2019′s 30 mergers—also the historical average.

The slowdown is not about a change in strategy but the result of timing related to the pandemic, according to a principal at Fairfax.

Of the five combinations that were completed in the second quarter of this year, two involved Dentons combining with law firms in Montevideo, Uruguay and Buenos Aires, Argentina, and another saw Littler Mendelson combining with a Warsaw, Poland, firm. The only domestic combinations that occurred this past quarter were in Philadelphia, in which Cozen O'Connor and Lamb McErlane each picked up a small law firm.

"The second quarter was not that different from last year, but the second quarter is always low," said Fairfax Associates principal Lisa Smith. "What we're going to see is that the third quarter is also going to be super low, and probably the fourth quarter."

Right now, the only merger that's set to be completed in the third quarter is between Troutman Sanders and Pepper Hamilton. That merger's effective date was delayed by three months due to the international outbreak of the coronavirus.

Law firms are still interested in mergers and scaling up, according to Smith and other legal consultants. But Smith said firms are being especially cautious now as the pandemic has forced several firms to lay off or furlough employees and cut salaries and partner draws.

As a result, the merger discussions Smith and her colleagues have been involved in have been put on pause until the fourth quarter.

"Had we not seen this kind of second surge, it might have started to pick up," Smith said. "I think people are feeling the uncertainty of what's going to happen for the rest of the year is making them focus on the business resilience measures—and delivering the 2020 results."

A law firm that's cutting salaries or reducing partner draws is unlikely to merge with another firm because of how costly it is, Smith said. Mergers between large firms can have price tags in the millions because of the costs associated with technology integration, branding, business development and shedding excess employees and office space, she added.

"The trend we're seeing is not a change in strategy, but a function in timing," Smith said. "It's just not the time to be pursuing that as aggressively."

Smith held open the possibility that the pandemic could push distressed firms into the market in the hopes of finding a white knight to merge with and rescue them. But whether those white knights decide to take on those risks is a bigger question, and instead they might wait for the firms to collapse and scoop up who they want.

"This is the pattern we saw in the last downturn," Smith said, before adding that an open question is whether that happens this year or next year.

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