Busy Merger Market Shows No Signs of Slowing
After two record-breaking years, merger activity is expected to stay high in the new year.
December 26, 2018 at 06:50 PM
4 minute read
As their smaller peers have been coupling up in record-breaking numbers, large and midsize law firms in the United States have mostly been sitting on the sidelines.
Expect that to change in 2019.
Several substantial combinations took place over the past year. Bryan Cave's trans-Atlantic tie-up with Berwin Leighton Paisner created a 1,600-lawyer superfirm. Three hefty mergers in Texas—Foley & Lardner and Gardere Wynne Sewell; Hunton & Williams and Andrews Kurth Kenyon; and Clark Hill and Strasburger Price—helped build and define the buzz around the Lone Star State. Fox Rothschild and Nelson Mullins Riley & Scarborough both bolstered their presence in the Southeast through deals with firms of roughly 150 lawyers.
These deals hint at a growing trend in the marketplace, says Lisa Smith, who heads the Washington, D.C., office of consultancy Fairfax Associates.
“When you look at some of the largest mergers in 2017, taking out cross-border deals, they tended to skew a little lower in size than what you're seeing now,” she explains. “I think we're seeing more interest in the firms that are in the 200-to-500-lawyer range, reaching combinations with similar-sized and larger firms.”
As 2018 came to a close, it was on pace to become the busiest year ever for law firm mergers, surpassing a record set in 2017.
“I can't remember a time when we've been asked to conduct more merger assessments—for deals that are already on the table,” Altman Weil principal Eric Seeger says.
But most of these completed U.S. mergers have involved the acquisition of smaller firms with no more than 20 lawyers. Those firms have grown more willing to consider a merger. Some have even initiated discussions themselves to seize opportunities to expand and serve clients more effectively, or as an exit plan for founders and senior attorneys.
Much of this activity has entailed tie-ups of neighboring firms.
“It's easy to understand who the other firm is, who their clients are and whether it's a good fit when you've been living next to each other. Obviously it makes you friends and collaborators rather than enemies and competitors. The client conflicts are easy to figure out,” Seeger says. “And the economics tend to be the same, because firms are already operating in the same market.”
The bigger deals are harder to pull off, but firms are generally in a stronger position to do so, having dealt with overcapacity and underperformance issues.
And for those firms looking to stretch into new territory, Texas will remain a top destination, along with Northern California and Washington, D.C. But merger fatigue may be kicking in for some.
“There are firms that are getting approached once a week, but there are only so many coffees that you can have,” Smith says. “The firms [for which] it really made sense to merge, they've already done it.”
Don't rule out the prospect of a groundbreaking global merger, either. All eyes are on Allen & Overy and O'Melveny & Myers. At the very least, count on global firms like Dentons and DLA Piper to continue expanding their footprints.
And with the U.S. economy expected to continue growing into 2020, there's no reason to expect the merger boom to end. More importantly, quality is rising along with quantity.
“Law firms are run much more effectively than they used to be, and firms are doing a better job of assessing the strategic, financial and cultural fit of a potential merger partner,” Seeger notes. “As a result, we're not just seeing more mergers, but better mergers.”
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