A second-quarter report by legal consultancy Altman Weil has found that the 39 law firm mergers announced in the U.S. so far this year match the pace of 2013, which yielded a record number of law firm tie-ups.
Most of the combinations this year involved East Coast and Midwest firms looking to western markets—such as California and Colorado—for future growth. Firms generally eschewed bigger deals in favor of focusing on smaller acquisitions, says Altman principal Ward Bower, honored last year by sibling publication The National Law Journal as a trailblazer in the legal services industry.
The NLJ, in its annual analysis of the nation’s 350 largest firms by attorney head count, reported last month that the record number of domestic mergers in 2013 were relatively small in size, thus resulting in little dramatic change to firm sizes. (Bower spoke with The Am Law Daily earlier this year about the trend toward smaller deals.)
Only one megamerger, the June 1 union between Squire Sanders and Patton Boggs that created 1,500-lawyer Squire Patton Boggs, was announced during the second quarter of this year. And while larger mergers remain elusive because of the various complicating factors associated with putting them together, Bower says that some bigger deals are currently being discussed.
“You still have some U.S. and U.K. firms looking at one another,” says Bower, a veteran of several transatlantic tie-ups. He declined to elaborate on which firms those might be, but did cite several factors that must be reconciled in order to push forward with a substantive union.
Bower says that differences in philosophies as to bank debt, which directly affects law firm capitalization, is perhaps the most common threat to talks between interested parties. Differences over retirement policies, partner compensation systems and client conflicts—the latter the bane of many a big firm’s existence—are other factors that preclude potential combinations.
Despite the difficulties associated with finalizing large-scale mergers, Bower says he expects the recent trend of one or two notable deals per quarter by Am Law 200 firms to continue. At the same time, large firms will continue to make smaller moves in places like California and Colorado because of attractive opportunities in those markets.
The Am Law Daily recently reported on Husch Blackwell and Shook, Hardy & Bacon absorbing smaller Denver firms, while the NLJ noted in May the acquisition of Los Angeles bankruptcy boutique Peitzman Weg by Robins Kaplan Miller & Ciresi.
“Colorado is a pure energy play,” says Bower, adding that California is attractive to both regional and national firms seeking a presence in a state that would have the world’s eighth-largest economy if it were an independent country.
Outside of The Am Law 200, NLJ 350 firms also found themselves in the merger mix.
Just this week Jackson Kelly, a 179-lawyer regional firm based in Charleston, W. Va., whose coal industry ties were the subject of a lengthy investigation last year by The Center for Public Integrity, acquired a 20-lawyer shop in Evansville, Ind. In Atlanta, 170-lawyer Smith, Gambrell & Russell picked up a leading local immigration shop last month, according to sibling publication the Daily Report.
Internationally, Dentons, which lost out to Squire Sanders in its bid for Patton Boggs, made the second quarter’s only other cross-border deal by absorbing five-lawyer South African firm KapdiTwala, according to our previous reports.
Africa, long thought to be one of the last untapped markets for global firms, saw one of the continent’s top economies in Kenya begin to take steps to liberalize its legal market. Kenya even experienced a law firm merger of its own as leading local shops Hamilton Harrison & Matthews and Oraro & Company announced plans to combine, according to a report last month by U.K. publication The Lawyer.
In Asia, another key market for global firms, Malaysia recently unveiled plans to allow foreign firms and their lawyers to practice some forms of local law.