The same forces that drove law firms to combine or merge in 2019 are likely to continue into the new year, even as the specter of a potential recession looms larger in the background.

The latter half of the year saw several major merger announcements: Minneapolis-based Faegre Baker Daniels and Philadelphia-based Drinker Biddle & Reath voted to join forces to create a new Am Law 50 firm, Cincinnati-based Taft Stettinius & Hollister and Minneapolis-based Briggs and Morgan said they would merge to create a 600-lawyer firm, and Kansas City, Missouri-based Lathrop Gage is merging with Minneapolis' Gray Plant Mooty to form the 400-lawyer Lathrop GPM.

Atlanta-based Troutman Sanders and Philadelphia's Pepper Hamilton also confirmed they were in advanced merger talks, and Cohen & Grigsby in Pittsburgh and Bingham Greenebaum Doll in Indianapolis agreed to become part of global megafirm Dentons' new "Golden Spike' network of U.S. affiliates.

Even though 2018 was "the best year for the industry since the financial crisis," and 2019 is shaping to be a decent year revenue-wise, some firms are choosing not to be complacent, said Kent Zimmermann, a Zeughauser Group consultant who advises firms on mergers.

"In many firms, where there's a sober recognition of what's happening in the competitive environment, there's a view that doing nothing is not an option," Zimmermann said. "Even if you're doing fine, by doing nothing, you're at risk of having the market pass you by."

The Faegre/Drinker, Taft, Lathrop GPM and Dentons combinations will be executed in 2020. Many of the mergers that were completed in 2019 involved smaller firms, although that's "a function of timing," said Lisa Smith, a principal at Fairfax Associates.

"As we look ahead what will be effective and what's likely to be effective, then I think we'll see it skew significantly upward in terms of the size of combinations," Smith said, regarding 2020.

Both ZImmermann and Smith said they're continuing to see a very high interest in merging and combining from law firms, which are facing to pressure to consolidate from clients that are looking to reduce the roster of law firms they go to for specialized legal help. They're also seeing rising technology costs as well as competition from alternative service providers.

Also on the horizon for 2020, however, is the potential threat of an economic recession. A number of law firms have said they're preparing for it by beefing up practices that thrive in a bad economy, including bankruptcy and litigation. In-house counsel have said they have already begun to roll back their legal spending as they anticipate a recession in the next two years.

Smith said firms that are properly scaled up will be better equipped to survive an economic recession. If isn't, a firm might not be able to make hard decisions like letting unproductive partners go "because you don't want to be on a downward spiral."

"There's sometimes the view that smaller midsize firms are more nimble," Smith said. "I'm not sure that's actually true, because I think they're a little more hamstrung, particularly if it's a full-service firm – needing to have enough depth in all of those services even if they aren't fully productive – whereas I think larger firms have more ability to right-size."

One of the reasons why law firms choose to merge or combine is because they're in—or want to avoid getting in—financial distress, Zimmermann noted. For instance, one of the driving factors in the Taft-Briggs merger was Briggs and Morgan's inability to quickly replace its retiring partners.

"As a growing group of firms show distress in a strong economy, I would expect the distress to get more acute in a weak economy," Zimmermann said. "I can't imagine how they would do when the economy softens and demand decreases, except for those that have strong countercyclical practices."

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