Law firms completed a record 56 mergers during the first nine months of 2018, according to consulting firm Fairfax Associates—one-third more than the average number of mergers for the same period over the past 10 years.
The 56 mergers through the third quarter marked an increase from the 50 mergers that took place during the same period in 2017. The average number of mergers for the same period over the last 10 years is 42.
Fairfax tracked a total of 20 competed mergers during the third quarter.
Kristin Stark, a Fairfax principal in California, said the high merger activity this year stems from increased competition and firms’ interest in seeking to improve their market position.
“This is a reflection of firms facing an intensifying competition for work, an intensifying competition for clients. In their view, they will be more competitive if they have broader talent, better talent, and mergers are how to get there,” Stark said.
Following the trend that emerged in 2018, Stark sees more mid-market combinations in the future because the financials of those firms tend to match up. She said conflicts are the biggest issue causing prospective deals to fall apart, and beyond that financials can be an issue.
Most of the mergers during the third quarter—80 percent—involved smaller firms with five to 25 lawyers. Fairfax reported that the four largest mergers included two combinations within the United States and two cross-border mergers.
The domestic mergers during the third quarter were not concentrated in any one region of the country, according to Fairfax. The 15 domestic mergers were spread among 12 states, with two each in Florida, two in Missouri and two in Ohio. Others states with one merger each are Hawaii, Colorado, Idaho, Minnesota, Nevada, New York, Oregon, Pennsylvania and Texas.
The largest merger of the third quarter was the joining of Nelson Mullins Riley & Scarborough with Miami-based Broad and Cassel, creating a firm with more than 750 lawyers. The second largest merger involving a U.S. firm was Dentons’ tie-up with 44-lawyer Alston Hunt Floyd & Ing of Hawaii.
Dentons was involved in four of the five cross-border mergers completed during the third quarter. The firm combined with Hanafiah Ponggawa & Partners in Indonesia, Zain & Co. in Malaysia, Delany Law in Barbados and Dinner Martin in the Cayman Islands.
The other cross-border mergers involved DLA Piper and the Denmark-based firm Delacour.
According to Fairfax, Dentons has driven much of the cross-border activity over the last three years. It was involved in 46 percent of cross-border mergers in 2016, 32 percent in 2017 and 50 percent through the first three quarters in 2018.
Looking ahead to the rest of 2018 and into 2019, Stark said several markets continue to be a hotbed for merger activity, including Texas, California, New York, Chicago, Washington, D.C., and Boston.