Puzzle-Mergers

Managing partners are still in the merging mood.

Law firm mergers kept up their record pace in the third quarter of the year and are on track to eclipse a record set just two years ago, according to one report and a preliminary analysis of another.

A report Wednesday by legal search firm Fairfax Associates said there were 14 mergers in the third quarter for a total of 49 so far this year. That’s five more than the total number that Fairfax Associates tracked through three quarters in 2016 and eight more than the 10-year average of 41 through the first nine months of the year.

Data gleaned by Altman Weil Inc.’s MergerLine, which has yet to report final results for the third quarter of 2017, reinforce the record pace of law firm mergers. The legal consultant’s database shows 23 unions being completed in the third quarter, up substantially from 13 a year ago. That brings the total number of deals so far this year to 75, according to Altman Weil.

The record for mergers set in a year, 91 in 2015, will fall if there are 16 mergers in the fourth quarter, typically a busier time for completing combinations. MergerLine data shows that last time there were fewer than 16 mergers in a fourth quarter was 2010. Last year there were 25 fourth quarter mergers.

While mergers and acquisitions in corporate America are often viewed as a sign of bullish beliefs among CEOs, many law firm analysts attribute the current consolidation among law firms to a fight for market share amid stagnant demand for legal services.

“Merger trends in the third quarter confirm our ongoing observations relating to the competitive and economic pressures being placed upon firms under 150 lawyers, and their increased openness to merger approaches,” Fairfax Associates said in a statement. “With the rising complexity of managing a successful, growing and sustainable law firm, we see more firms struggling with administrative and resource burdens, as well as talent pressures due to senior partner demographics and competition for senior associate and partner level laterals.”

While the majority of mergers reported by Altman Weil’s MergerLine involve small firms—13 of the 23 mergers in the third quarter were between firms of less than 10 lawyers—there were a number of high-profile combinations involving Am Law 200 firms.

The largest of those was Philadelphia-based Saul Ewing’s acquisition of Chicago-based Arnstein & Lehr, followed by fellow Philadelphia-based firm Ballard Spahr’s absorption of 136-lawyer Lindquist & Vennum in Minneapolis. Cozen O’Connor, yet another Philadelphia-based Am Law 100 firm, announced Wednesday its union with Santa Monica-based real estate boutique Gilchrist & Rutter. (The Cozen deal was announced Wednesday and therefore not included in tie-up tallies by Fairfax and Altman Weil.)

DLA Piper, a global legal giant that has already done deals earlier this year with other firms in Copenhagen and Lisbon, announced in late July that it had picked up nearly 60 lawyers in Los Angeles after acquiring local entertainment shop Liner.

Altman Weil said the number of cross-border law firm mergers was already at a full-year high going into the third quarter and those types of transactions show no signs of slowing down. Mostly, that was thanks to Dentons, which has been on an international buying binge.

On Wednesday, Dentons announced its combination with Kampala Associated Advocates, the largest law firm in Uganda. Dentons, which topped The American Lawyer’s Global 100 list as the largest firm in the world by head count, is also poised to close on its acquisition of 200 lawyersfrom Scotland’s Maclay Murray & Spens, while also taking on 10 lawyers though another deal in Uzbekistan.

Roy Strom, based in Chicago, covers the business of law with a focus on how law firm business models are changing. He can be reached at rstrom@alm.com. On Twitter: @RoyWStrom