Law.com Home > Large Law Firm Home

Is All Quiet on the Law Firm Merger Front?

Merger chatter in the Pennsylvania market seems to be quieter than this time last year, but legal industry experts say it's never really stopped.

Merger activity in 2007 is set to outpace the flurry of combinations completed in 2006, according to data compiled by Hildebrandt International.

Consultants and law firm leaders promise that any slowdown in merger announcements has more to do with summer vacation than with a lack of discussions.

"I don't see any slowdown in talks at all," Altman Weil consultant Ward Bower said.

He said he thinks there will be 50 or more mergers nationally by the end of the year, which is on pace for what the industry saw in 2006.

There were 37 law firm mergers completed between Jan. 1 and June 30 of this year, with some of the largest coming from Pennsylvania firms. In the first half of 2006, 33 mergers were completed. Hildebrandt included mergers where the acquired firm had five or more attorneys.

Reed Smith was responsible for two in 2007, with its January merger with Richards Butler and its March merger with Chicago-based Sachnoff & Weaver. Drinker Biddle & Reath completed a Chicago merger with Gardner Carton & Douglas in January.

The largest merger of the year, according to Hildebrandt, was between Kirkpatrick & Lockhart and Preston Gates & Ellis to create K&L Gates.

K&L Gates recently said that it was in talks with Texas firm Hughes & Luce, but few other recent mergers -- announced or completed -- have involved Pennsylvania-based firms.

Most merger activity occurs in the first and third quarters, and Bower said he anticipates an increase in that activity toward the end of the third quarter when many people come back from vacation.

In looking at the national picture, Bower said there is just as much merger activity this year as last year. He said there are plenty of firms talking in Pennsylvania as well.

Wolf Block Schorr & Solis-Cohen was recently in merger talks with Cozen O'Connor, but those talks failed after a few months.

"There's a lot of talk and, easily, as much talk as last year," Wolf Block Chairman Mark L. Alderman said, "but a lot of us are finding that these are very hard deals to do."

The general consensus, he said, is that out-of-city mergers are easier to accomplish and are probably worth more to a firm. Most firms, Alderman said, are currently looking at intercity mergers as opposed to intracity mergers.

Montgomery McCracken Walker & Rhoads completed a merger in June 2006 with 11-attorney Crawford Wilson & Ryan and brought on the three-attorney firm Corsell Law Group in June.

Chairman Stephen A. Madva said ever since word got out that his firm was in an acquiring mode, he has received at least 20 calls for potential mergers. Most come from firms with 25 or fewer attorneys and, in some instances, his would be the acquired firm, Madva said. These firms reach from California to Florida and north to Boston, he said.

About 75 to 80 percent of the inquiries are from smaller firms that are working with consultants. Madva said he would expect most firms his size are looking at growth opportunities.

"I don't think the phenomenon has slowed down at all," he said.

The more acquisitions a firm makes, the more merger inquiries arise as the new partners bring new contacts, Madva said. And for a firm the size of Montgomery McCracken, getting a little bigger offers some additional security.

"For me, growth is a way of easing the vagaries of the economy," he said.

If work is slow in Philadelphia, maybe it won't be in Newark, N.J., or Wilmington, Del., Madva said, by way of example. And the more attorneys a firm has, the number of client contacts increases exponentially, he said.

If a firm like Morgan, Lewis & Bockius or Reed Smith lost a $2 million client, it wouldn't have as great of an impact as when Montgomery McCracken does, Madva said.

"So we need to get a little bigger so those ... variations are less severe," he said.

Although Fox Rothschild is larger than Montgomery McCracken, with around 400 attorneys, the firm has also been in growth mode. It has completed seven mergers since 2005, although several wouldn't count toward Hildebrandt's calculations because they were with firms that had fewer than five attorneys.

The opportunities for merger discussions -- if not an actual merger -- are certainly presenting themselves. Madva said consultants are becoming more aggressive and are "absolutely" having an effect on the merger activity among law firms.

He said he often gets calls from consultants espousing the mantra that if a firm isn't on the Am Law 200 report it must "merge or die, merge or die."

Consultant Frank D'Amore of Attorney Career Catalysts said he hears from managing partners all the time that they are receiving numerous phone calls from consultants or firms regarding potential mergers. Attorneys in other markets have told him that they receive a lot of calls from Philadelphia firms, he said.

While consultants are certainly out there making calls, D'Amore said he doesn't think they can create a market that doesn't exist because mergers are costly and time-consuming and should only be done if they are the right fit.

There are consultants, he said, who call two firms without being solicited by either one in order to "cobble something together."

"That type of activity is bad for the industry and bad for the law firms," D'Amore said.

Hildebrandt expects an increase in activity in the coming months. The firm said there are seven additional combinations that have been announced with effective dates set for the third and fourth quarters, bringing the total for the year to 44 thus far.

Subscribe to The Legal Intelligencer