At the end of the third quarter of 2016, the number of law firms mergers was down from last year with no definitive megamerger in sight. It seemed the industry could be reaching a plateau.
But all that has changed in the last month, with 2016 shaping up to at least come close to last year’s record for law firm combinations.
Just this week, three potential transatlantic mergers have surfaced. U.K.-based Eversheds and Atlanta’s Sutherland Asbill & Brennan, an Am Law 200 firm, announced that they’re in talks to combine to form a 2,300-lawyer firm with 61 offices.
Also on Tuesday, Holman Fenwick Willan, another U.K. firm, told The Am Law Daily that it would expand through traditional merger with Houston’s Legge, Farrow, Kimmitt, McGrath & Brown. The newly formed firm will have about 470 lawyers worldwide.
Finally, sibling publication Legal Week reported that Dentons might acquire the struggling European branch of King & Wood Mallesons.
“Consolidation is real in the industry,” said John Cashman, partner and vice president at the law firm recruiting firm Major, Lindsey & Africa. “Clients want to work with fewer firms.”
Cashman predicted that 2017 would be an even bigger year for law firm mergers, but noted that at some point, albeit far in the future, the plateau would come.
“We will never get to a world where there are four legal firms,” Cashman said. “The conflict rules are way too strict.”
According to Altman Weil’s MergerLine, which tracks law firm combinations in the United States, there were 60 mergers in the first three quarters of this year, compared with 68 in that time last year. So far in the fourth quarter, the legal consultancy has tracked 17 mergers, which doesn’t include the potential combinations of Sutherland and Eversheds or Dentons and KWM. The last quarter would need to yield 14 more mergers to meet last year’s record of 91.
Thomas Clay, a principal at Altman Weil, said that’s not out of the question.
“There really is quite a bit going on that we’re aware of that could give rise to an increase,” he said, referring to talks between firms. “You’re beginning to see some of that actually coming to fruition.”
Since most firms’ fiscal years close at the end of either December or January, it’s normal for deals to be finalized around this time, Clay said.
He said the consolidation of the industry is a result of a general lack of demand for legal services, which is finally starting to sink in, especially at smaller and midsized firms.
“Unfortunately, I think a lot of people are looking for saviors,” he said.
The merger activity is not confined to any particular market or region, according to Altman Weil.
“We’re definitely seeing an uptick in firms of 10 to 50 lawyers looking to be acquired due to internal demographic issues or a perceived lack of growth potential,” said Eric Seeger, another Altman Weil principal, in an email. To make up for the lack of growth in demand, firms seek to grow through combinations with others as competition for market share heats up.
Major Lindsey’s Cashman agreed that small and midsized firms have been particularly keen to merge.
“Small and midsized [firm leaders] tell me that they don’t have the next generation of rainmakers,” he said.
Contact Nell Gluckman at firstname.lastname@example.org. or on Twitter: @NellGluckman.