It looks like merger mania struck Texas this month, with two big law firm mergers involving Texas firms taking effect and another deal reportedly in the works. But law firm consultants say it won’t end there.
“That train is not stopping anytime soon,” said David Barnard, a founding partner of the legal consulting firm Blaqwell Inc.
As of April 1, the landscape of the Texas legal market was markedly and permanently altered. That day, Dallas-based Gardere Wynne Sewell merged with Foley & Lardner, creating a 1,100-lawyer firm known in Texas as Foley Gardere. On April 2, Andrews Kurth Kenyon, a firm founded in Houston more than 100 years ago, merged with the Virginia-based firm Hunton & Williams, creating the 1,000-lawyer Hunton Andrews Kurth. Strasburger & Price, another large Dallas firm, is in merger talks with the Detroit firm Clark Hill, and that deal could close soon.
The recent mergers demonstrate the attractiveness of the Texas market. But the deals have also put pressure on other Texas firms that now must consider that they too may need to merge, simply because further market consolidation is inevitable.
They have added to the disruption that the Texas legal industry has already been experiencing for some time, prompted by a number of large, prominent firms opening offices in the state, creating new competition with the Texas homegrown firms and stirring up the lateral market.
Texas has been “a wonderful market for untapped value,” said Chris Batz, a legal recruiter in Kansas City who is founder of the Lion Group.
Barnard said Texas firms are willing to combine with out-of-state firms because those links provide them the financial ability to become competitive in New York and Washington, D.C.—the two fastest growing markets. Also, mergers give the Texas firms greater resources, including a greater diversity of high-value practices and more money to spend on technology, he said.
For the non-Texas-based firms, the mergers offer strong Texas practices such as energy, healthcare and intellectual property.
“All of it is very strategic. All of it is very carefully considered,” Barnard said. “Very few of these acquisitions are made [simply] because it seems like a good idea. Most of them are made for particularly focused business reasons,” he said.
Much like accounting firms a few decades ago, law firms are now in a period of consolidation. In many situations, the general consensus is that bigger is better because a deep bench in a wide variety of practice areas and a wide net of offices around the world meets the needs of clients, consultants say.
But many firms have their eyes on Texas firms in particular because of the strength of its economy, the number of corporate headquarters in Texas, and the growing number of lawyers in the state. According to the State Bar of Texas, 90,485 lawyers were actively practicing in Texas in 2017, up from 73,308 in 2007.
Marcie Shunk, a law firm consultant at The Tilt Institute in Houston, said Texas has been an active merger market for several years, but the merger mania slowed after Houston’s Fulbright & Jaworski combined with the U.K. firm Norton Rose in 2013.
“I don’t think there was a correlation per se, but that’s when things started to shift,” she said. Indeed, it was after Texas firms turned gun-shy about mergers that some out-of-state firms started moving into Texas and opening offices there.
The influx of those branch offices—from such Big Law powerhouses as Latham & Watkins and Kirkland & Ellis—prompted some Texas firms to rethink the possibilities of a merger. “As some of the incumbent Texas firms looked around…[they recognized that] the market was going to become increasingly high-end and noisy with the addition of the other competitors,” she said.
Batz noted that in law firm economics, scale matters. So some large Texas firms that so far have avoided a merger may now consider going that route.
Shunk, Barnard and Batz each said they expect to see more mergers involving Texas firms in the future. Batz said he is approached at least once a month by an Am Law 200 firm in the Midwest that is interested in a deal in Texas.
“The Texas market is the New York of the South,” he said. “It dwarfs numerous markets around the country. It just continues to be a market that makes firms starry-eyed.”