The volume of merger discussions reported in the last year indicates that boutiques and midsize firms competing with large firms are under increasing pressure to merge or grow in size.
While few merger conversations actually result in combinations, many firms confirm that they are open to discussions.
Two sources told the Law Journal that, in the last year, Crowell & Moring, a Washington, D.C., law firm with 500 lawyers, has courted 60-attorney Satterlee Stephens Burke & Burke in New York. The sources also said 97-attorney Moses & Singer and 67-attorney Phillips Nizer held merger discussions for months but did not agree on a deal.
Leaders of these firms declined to discuss any merger discussions.
Meanwhile, small and midsize firms in New York are acquisition targets by global firms looking to expand in the U.S. financial capital. For instances, leaders of Am Law 100 firm Baker & McKenzie said they plan to significantly expand in the city and are open to acquisitions.
A number of U.K. firms also are eager to acquire New York firms of between 50 and 200 attorneys, according to law firm consultant Ward Bower.
“There’s a lot of combination activity going on right now in the middle of the market,” said Bower, of Altman Weil. “Midsize firms are increasingly finding that a lot of their best legal work is going to large firms with greater breadth and depth in their specialties and with large geographic coverage, and that places midsize firms at risk.”
Bower said some midsize firms in New York have hired his consultants to conduct strategic reviews. One common question is why the firm’s lower rates don’t result in more business.
While smaller firms say they have a price advantage, clients also consider a firm’s reputation and familiarity to its board of directors, industry experience and variety of practices.
When corporate clients ask for discounts and alternative rates, midsize firms are vulnerable, another consultant said. If both a midsize firm and a large firm provide a discount resulting in rates close to one another, the corporation may retain the larger firm with a reputation likely to appease its board, the consultant said.
The consultant, who spoke on the condition of anonymity, said midsize firms are increasingly attracted to the strength and stability of larger firms after the economic downturn, and they do not want to continue referring clients to other firms for matters outside their location or practice.
Merger activity is particularly strong among upstate New York firms. Last year saw the merger of Buffalo’s Damon Morey with Syracuse-founded Hiscock & Barclay, while Syracuse-founded Bond Schoeneck & King acquired Jaeckle Fleischmann & Mugel in Buffalo.
This month, Rochester-based Harris Beach absorbed a six-attorney firm in Long Island, Brown & Altman.
IP law firms in New York continue to be acquisition targets. Edward Colbert, managing partner of Kenyon & Kenyon, where head count and revenue dropped in recent years, has said Kenyon would not reject a merger with a full-service firm.
Crowell & Moring’s New York managing partner Edwin Baum said Crowell is interested in expanding its New York practice, which has about 55 attorneys.
“The firm is always considering opportunities to expand or augment our practice in all of our offices, in any location where it would make strategic and business sense,” Baum said. “We would examine opportunities when they present themselves.”
Baum and Satterlee managing partner Justin Klein declined to comment on any merger talks.
Satterlee, founded in 1894, is an attractive midsize target to larger firms. Satterlee is a full service firm with practices in banking, corporate, litigation, bankruptcy, trusts and estates, real estate, immigration and IP. The firm’s founder, Herbert Satterlee, married Louisa Pierpont Morgan, the daughter of J.P. Morgan, in 1900, according to the firm’s history.
The leaders of Phillips Nizer and Moses & Singer also declined to comment on specific merger talks, but both said their firms are not seeking a merger partner.
Marc Landis, managing partner of Phillips Nizer, told the Law Journal his firm in late 2015 signed an extension on its lease at 666 5th Avenue. He declined to specify the length of the lease or its terms, but said, “We’re here for years, not weeks.”
Phillips Nizer listens to business opportunities, he said, but “we are very happy and comfortable with the path we’re on and that path is strategic growth while remaining an independent, midsize firm.”
Landis disagreed with the premise that midsize firms are under pressure to merge.
“Institutional clients are being more strategic on making decisions on where to take their legal business,” he said. While a Fortunate 100 company may still choose a large firm for critical litigation, he said, “there’s a lot of other work where the cost of a big firm isn’t warranted and there’s an opportunity for midsize firms to continue doing that work.”
Landis said a client of an Am Law 50 firm recently told him he felt his matters were not a priority at the larger firm and were not getting enough attention. He said the client’s dissatisfaction led the company to search for law firms with fewer than 150 lawyers, and Phillips Nizer was retained.
Moses & Singer managing partner Jay Fialkoff said the firm hears out merger proposals, but “We’re not actively seeking to talk with a larger firm.” He added, “The firm will stay a midsize firm. That’s the current feeling.”
Fialkoff said midsize firms do face pressure in recruiting and maintaining talent because larger firms or corporate legal departments often lure away associates.
Expanding in New York
Meanwhile, U.S. and international firms are eager to open or expand in the city.
Bower said many U.S. and international firms want to have at least 100 attorneys in Manhattan for a critical mass, which they believe will make the firm more credible to clients.
Baker & McKenzie has aggressive growth plans in the U.S., particularly New York, where it already has about 100 attorney, said J. Richard Hammett, Baker & McKenzie’s North American managing partner.
The firm is aiming to double size of the Manhattan head count in the next 18 to 24 months, Hammett said. “We’re looking at all options,” ranging from individual hires to group or firm acquisitions.
He declined to say whether the firm is in acquisition talks now.
Baker & McKenzie in 2005 acquired most of the 70-attorney Coudert Brothers’ New York office.
Fueling the growth plans, Hammett said, is more demand from foreign multinational companies that want to expand in the U.S. market, including through cross-border deals. Baker & McKenzie said preliminary data from the first 11 months of 2015 showed a 10 percent increase in cross-border transactions.
Hammett and New York managing partner James Colihan said U.S. law firms are increasingly receptive to merger talks that would make them a global firm.
“Very few clients you run into are just domestic at this point. So many are operating internationally or have to grow internationally to remain competitive,” Colihan said. “Time may be on the side of the more global approach.”