A new record for law firm mergers was set last year at 102, marking a 12 percent increase from the previous record, 91, set in 2015, according to legal consultancy Altman Weil Inc.’s MergerLine, which has tracked law firm deals for the past 11 years.
That last year would set a record became clear after nine months, when 76 deals had already been announced. There were 26 deals announced in the last quarter of the year, topping the 25 seen during the fourth quarter of 2016.
Many factors have been said to be driving this continued consolidation craze. Anxiety over a law firm’s place in a fast-changing market; a lack of money to invest in increasingly necessary technology; and rainmaker retirements. The nature of big begets bigger. And, of course, a continued flat-demand market where volatility puts firms one rough year away from looking weak—to competitors and to their own top partners.
Here’s one less-talked-about reason that may contribute to the merger mood: Younger managing partners, at firms of all sizes, are more willing to engage in merger discussions than their baby boomer predecessors, said Thomas Clay, a principal at Altman Weil.
“I really think there is a phenomenon going on where the baby boomers are finally moving aside, and other people with very different worldviews and time horizons are willing to look at things that the boomers in a lot of ways always said. ‘No way, no how,’” Clay said. “They just don’t automatically reject the idea of joining another organization.”
Younger partners are taking part in strategic planning sessions, Clay said, and those often involve more open discussions about the benefits of joining a larger firm.
The overwhelming majority of the deals tracked by MergerLine continue to be acquisitions of small firms. Acquisitions of firms with two-to-20 lawyers accounted for 80 percent of deals tracked in 2017, which is roughly in-line with prior years.
Of those smaller deals, the top three inbound destinations were Florida, New York and Texas, according to Altman Weil. Of the deals involving more than 20 lawyers, 40 percent were international and 25 percent involved firms acquired in California.
Last year also saw a record number of cross-border deals, 16, which topped the previous high of 11 set in 2016, Altman Weil said. Those deals were driven by the largest firms, primarily Dentons, DLA Piper and Norton Rose Fulbright, which have used continuous combinations as a long-term strategy for growth.
Dentons, for instance, completed seven international combinations last year, Altman Weil said. The nearly 8,000-lawyer global legal giant absorbed Maclay Murray & Spens, a 200-lawyer Scottish firm; Boekel, a 70-lawyer shop in the Netherlands; as well as small firms in Mexico, Myanmar, Peru, Uganda and Uzbekistan.
Norton Rose’s acquisition of Chadbourne & Parke’s roughly 300 lawyers was the largest deal involving a U.S. firm last year, Altman Weil said. Norton Rose, which has been busy in recent years bolting on firms around the world, added another 179 lawyers by absorbing Australia’s Henry Davis York.
The Altman Weil report came a day after another report, from Fairfax Associates, said that law firm merger activity reached a level not seen since 2001. Fairfax Associates said there were 65 completed mergers in 2017, compared to 58 mergers in 2016. The Fairfax report said the record for mergers was set in 2001, at 86. (One difference between the Fairfax Associates and Altman Weil reports is that Fairfax tracks “completed” mergers, while Altman Weil tracks “announced” mergers, leading to a disparity in their numbers each year.)
Altman Weil’s Clay said he sees no reason why the mergers will abate in 2018.
“Given the demography of leadership, the declining demand and the pressures that brings, I don’t see why it would [slow down] over the next several years,” Clay said.
The New Year has already seen a flurry of merger announcements.
Eversheds Sutherland, formed last year through an international merger between Atlanta’s Sutherland Asbill & Brennan and U.K. firm Eversheds, announced Tuesday that it would formal absorb a Dutch affiliate of eight partners and 32 lawyers previously known as Faasen & Partners.
Jackson Lewis, meanwhile, said Tuesday that it had absorbed 15 lawyers in St. Louis from local labor and employment firm Lowenbaum Law. And McGuireWoods Consulting, a lobbying arm of the Am Law 100 firm of the same name, has opened a new office in Tallahassee, Florida, with the acquisition of three lobbyists formerly affiliated with the Advantage Consulting Team.
So, law firm managing partners can expect more calls from competitors interested in merging. What to do about it? Clay has at least one piece of advice: Don’t be lured into a deal over what he calls “Jack Daniel’s dinners.”
“They have a good dinner together. Then they say, ‘I like those guys,’” Clay said. “They’re meeting three or four people out of a couple hundred. Don’t get all excited.”