Credit: William Brown

Major legal markets like New York, Washington, D.C., California and Chicago will stay hot in 2020, as law firms look to either enter or expand their presence in those markets. But don't sleep on the rest of the country.

Law firms have been clamoring to get a foothold in several middle markets, including Atlanta, Boston, Dallas, Minneapolis, Nashville, Seattle and the North Carolina "Research Triangle"—an area marked by Duke University, North Carolina State University and the University of North Carolina at Chapel Hill—according to consultants who advise firms on mergers.

"We are continuing to see firms anywhere from 100 lawyers to 600 to 700 lawyers feel like they need more scale in order to compete effectively," says Lisa Smith, a principal at Fairfax Associates. "I think we'll continue to see consolidation in the form of laterals and groups or small acquisitions or mergers of equal size. Consolidation is going to continue to be big in 2020."

The Dallas-Fort Worth metroplex—an area that encompasses 11 counties and 7.5 million people—is home to 25 Fortune 500 companies, one of the largest concentrations of those companies in the world, says Scott Barnard, the partner in charge of Akin Gump Strauss Hauer & Feld's Dallas office. The rent is also cheaper there. With those numbers, it's no surprise law firms are trying to get into Dallas, he says.

Rates can determine how and where law firms choose to scale up and merge, says Kent Zimmermann, a Zeughauser Group consultant. A law firm based in Chicago might look to merge with a firm based in New York, San Francisco or London, where the rates are higher.

"If you're starting in Atlanta, then there's more markets than that that have higher rates," Zimmermann says. "It's all relative. It depends on where you're starting from. But the benefits of scale are becoming clearer. Where they go depends on where they're starting from and their strategy."

Smith and Tom Clay, a principal at Altman Weil, are anticipating that law firms will still show significant interest in mergers and combinations in 2020. But they both note that, after years of consolidation, it's getting a little harder for law firms to find the right candidates to merge or combine with, especially in the major markets.

"There aren't that many small or midsize firms left in all of those markets who are interested in mergers who are willing to consider it," Smith says. "That's what holds firms back."

Jeffrey Lowe, the global practice leader of Major, Lindsey & Africa's law firm practice group, has similar sentiments, saying that, as consolidation occurs, there are no "three or five firms that are perfect for you who matched up in terms of complementary geographies and practice areas."

But a recession in the U.S. economy is a wild card in these predictions, these consultants say. Plenty of law firms have said they're preparing for it, building up practices that thrive in a bad economy, including bankruptcy and litigation. But one law firm leader notes that it's hard to predict how a recession would hit the market and how long it would last.

An economic recession would affect Dallas, but only temporarily, Barnard predicts, noting the variety of companies that are in the area.

A recession could cause law firms that are considering a merger to pull back and reevaluate their circumstances, Clay says. He acknowledges that the same recession could cause other mergers to accelerate. For his part, Lowe thinks an economic recession will accelerate the rate of law firm mergers.

"It's going to expose a lot of firms that have been kept afloat by a very buoyant economy," Lowe says. "Once that changes, they're going to realize they're in no position to survive that kind of economy. It will force a number of weaker firms to merge."