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The law firm merger market cooled off significantly during the second quarter of 2009, according to reports by a number of legal consultants. Hildebrandt International’s latest MergerWatch found that nine U.S. law firms completed mergers and acquisitions during the quarter, compared to 33 during the first quarter. Similarly, Altman Weil’s most recent MergerLine reported that mergers fell from 25 in the first quarter to seven during the second quarter — a 72 percent decrease. The tepid merger landscape heated up a little on July 6, when Bingham McCutchen announced that it will acquire New York’s McKee Nelson, but that combination will be counted during the third quarter. Bingham’s acquisition is the only sizable U.S. law firm merger or acquisition within the past 3 1/2 months — the mergers and acquisitions that transpired during the second quarter were relatively small. According to the Hildebrandt report, seven mergers involved firms with between five and 10 attorneys. The largest merger on Altman Weil’s list was between 115-attorney Norris McLaughlin & Marcus in Bridgewater, N.J., and 35-attorney Tallman, Hudders & Sorrentino in Allentown, Pa. Barnes & Thornburg also acquired the Minneapolis-based Parsinen Law Firm, with 22 attorneys. It’s not hard to understand why mergers and acquisitions have slowed so much, said Bill Brennan, a consultant with Altman Weil. “The economic meltdown was like a slap in the face to the legal industry, and what do you do when you’ve been slapped in the face?” he said. “You step back and get a better understanding of the lay of the land before you proceed. The last thing people are willing to do right now is make a bold move.” Consequently, many law firms have taken a “wait and see” approach regarding mergers and acquisitions, to get a better feel for the financial performance of potential targets, he said. The number of law firm mergers was relatively high during the first quarter of the year because many of those deals were already well underway when the economy hit the skids in September, Brennan said. Because law firm acquisitions and mergers often involve months of discussion beforehand, the full impact of the recession wasn’t felt until the second quarter of 2009. For example, Bingham McCutchen and McKee Nelson began discussing their merger in late 2008, but didn’t announce the deal until more than six months later. Brennan and Hildebrandt International consultant Lisa Smith agreed that many firms appear more interested in acquiring laterals, small groups or very small firms than in large-scale mergers. “While interest in mergers remains high, the slower activity in the second quarter reflects overall caution on the part of firms, as well as the focus on the abundance of lateral partner opportunities,” Smith said. The slow merger activity during the second quarter doesn’t mean that 2009 will be dead for law firm combinations. Brennan expects mergers to pick up during the fourth quarter of 2009. Peter Giuliani, a Connecticut-based legal consultant who counsels firms on mergers, said that several of his clients are actively looking for acquisitions or mergers right now. “If your long-term plan is for growth by acquisition, you’re not going to change that just because you were down 5 percent last year,” Giuliani said. “You’re going to stick to that plan, and the people I’m familiar with have not stopped talking and looking [for potential merger targets].”

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