Attention, partners and Big Law leaders at newly formed mega-firms.

Not to interrupt your post-merger glow, but a report released Wednesday by ALM Intelligence states that most major law firm combinations since 2000 have not resulted in significant growth.

The report, which analyzed 50 combinations involving two Am Law 200 firms between 2000 and 2015, found that five years after a merger most firms had underperformed their peers in revenue growth and saw their costs increase. Those outcomes, according to the report, are often glossed over by managing partners who fail to account for the complexity involved in cross-selling, expanding into new cities and installing technologies to tie their firms together.

Five years after a merger, 30 percent of firms saw their gross revenue fall and 73 percent reported revenue gains less than their group of peer firms in revenue per lawyer and profits per partner. Almost all firms (92 percent) saw cost per lawyer increases, despite mergers often being viewed as a way to gain efficiencies. Those cost increases amounted, on average, to a 4 percent reduction in profits per partner.

“The data seems very conclusive,” said Nicholas Bruch, a senior analyst with ALM Intelligence who authored the report. “The prevailing takeaway is that mergers are not successful at creating an environment of supercharged growth, and they are not very successful either at creating a merged firm that is drastically more efficiently run. In fact, it is probably the opposite.”

The report throws cold water on a growth strategy that has permeated the legal marketplace as client demand has flat lined. But Tom Clay, a principal at legal consultancy Altman Weil Inc. who counsels firms on mergers, said it is difficult to fault managing partners for combinations that did not result in major growth considering the impact the global economic recession had during the study’s timeframe.

An Altman Weil study of the NLJ 250, which is now the NLJ 500, shows that list of firms grew in head count by 70 percent in the decade leading up to the recession. Since then, those same firms have had negative growth.

“The recession was such an enormous impact and continues to be, so to draw conclusions about what managing partners should and shouldn’t do would be problematic,” Clay said.

The ALM Intelligence report states that mergers have been a common route to the top of The Global 100 rankings. The most recently merged firms, which are not included in the report, include Arnold & Porter Kaye Scholer, Eversheds Sutherland and Norton Rose Fulbright.

The report states that 40 percent of the largest 25 firms in the Global 100 were created from major mergers or a series of combinations. The nine firms in the top 25 identified in the report are: Baker McKenzie, CMS Legal Services, Dentons, DLA Piper, Herbert Smith Freehills, Hogan Lovells, Mayer Brown, Norton Rose Fulbright and Reed Smith.

Nearly 70 percent of Am Law 200 firms have taken part in a merger of some form since 2000. And the merger wave has resulted in a larger market share consolidating among the largest 50 law firms, which last year took in 60 percent of revenue in the Am Law 200, up from 52 percent in 2011.

Common pitfalls for managing partners, according to the report, are seeing more partner departures than anticipated; failing to execute on cross-selling; and having partners’ focus diverted from winning work while a merger is being consummated. ( The American Lawyer reported earlier this year on 2016 almost matching a record year for law firm mergers.)

The ALM Intelligence report states that law firms should avoid mergers that result in a “larger platform” of practice areas or geographies. Instead, they should focus on deals that will add to their core strengths.

“Law firms should look more favorably on merger candidates that look similar to themselves,” said the report. “Firms with similar practice area profiles, client profiles and overlapping geographies will allow firms to build on their strengths and develop stronger market positions.”

Kent Zimmermann, a consultant at the Zeughauser Group who advises on firm mergers, said he often sees merger talks strike up between firms because the managing partners met at a conference or other social event. It is for reasons like that—friendship—that Zimmermann said he counsels clients to scrap potential mergers. And while he said a study of merger deals over a longer period of time would be helpful, he agreed with the report’s suggestion to seek out merger candidates with similar strengths.

“I regularly advise against consummating mergers some firms are considering,” Zimmermann said. “And I think that surprises firms. But I do that a lot. And I think the data the analysis reveals speaks to the need for being very strategic rather than merely opportunistic in considering a combination.”

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