(Photo by Benjiecce/iStock)
Data released by legal consultancy Altman Weil on Wednesday shows that U.S. law firm combinations rose 47 percent in 2013. Small firm tie-ups were partially responsible for the frenzied merger activity, which saw 88 firms join forces—the largest number in a single year since Altman Weil began tracking mergers in 2006.
The results weren’t a surprise—The Am Law Daily reported late last year on 2013’s record-setting merger pace—but Altman Weil does note some of the reasons driving the merger mania. For instance, most of the merger deals involved a smaller firm being absorbed by an acquirer at least five times its size.
Ward Bower, a principal at Newtown Square, Pa.–based Altman Weil and veteran merger enthusiast, tells The Am Law Daily that larger firms of the Am Law 200 variety have been keen on picking up smaller shops to bolster certain practice areas or move into new geographic locales.
Despite 2013’s high volume of combinations, mergers between Am Law 200 firms were nonexistent, something Bower attributes to the complexity in orchestrating larger deals that call for the formation of a “third entity” with a unified compensation and management structure that must be negotiated between both merger partners.
Dentons and McKenna Long & Aldridge saw their tie-up talks flounder in November because of disagreements about the structure of a combined firm. Conflicts, which helped scrap discussions that same month between Pillsbury Winthrop Shaw Pittman and Orrick, Herrington & Sutcliffe, as well as in December between Locke Lord and Patton Boggs, are also a complicating factor in completing big firm mergers.
Altman Weil’s report comes on the heels of research released by London-based alliance partner Jomati Consultants, which notes that mergers among U.K. firms also hit record levels in 2013.
Bower says that most merger activity in the U.K. last year was domestic. With the country just beginning to emerge from a double-dip recession, and the fiscal year for most British firms ending on April 30, Bower says he foresees the potential return of transatlantic merger activity in 2014.
“The U.K. firms are in their final stretch right now, so we’ll know their [2013–14] financial performance soon,” Bower says. “I think you’ll see U.S. firms, at least those that are rethinking what they want to do in London, take a look at some of them.”
Cross-border mergers represented only 6 percent of law firm tie-ups in 2013, according to Altman Weil. The largest deal involved Hogan Lovells’ acquisition of 120-lawyer South African firm Routledge Modise, a tie-up The Am Law Daily reported on in November.
And if the early results from 2014 are any indication, more mergers could be on the way this year.
One of Tennessee’s largest firms was created on Jan. 1 following the combination of Memphis-based Thomason, Hendrix, Harvey, Johnson & Mitchell and Knoxville-based Lewis, King, Krieg & Waldrop. Sacramento-based Weintraub Tobin Chediak Coleman Grodin, a firm formed through mergers with firms in San Francisco in 2011 and Los Angeles in 2012, picked up five-lawyer litigation firm Waldron & Bragg in Newport Beach, Calif., according to sibling publication The Recorder.
Hiscock & Barclay, a leading firm in upstate New York, also announced this week it would acquire seven-lawyer Elmira shop Davidson & O’Mara, while sibling publication the Daily Business Review reported on 40-lawyer Fort Lauderdale firm Tripp Scott adding Boca Raton’s Ellis Law Group. And 77-lawyer Carmody Torrance Sandak & Hennessey went live on Jan. 1 following a merger between two Connecticut firms, according to sibling publication the Connecticut Law Tribune.
Other deals reportedly in the works include Buchanan Ingersoll & Rooney’s tie-up talks with Tampa’s Fowler White Boggs, according to sibling publication The Legal Intelligencer. Fowler White, which saw a 70-lawyer insurance defense group break away to form Banker Lopez Gassler in 2008, rebounded in 2011 by picking up a 12-lawyer firm in Fort Lauderdale.
Reuters reported just before the New Year that Blank Rome and Nixon Peabody—the latter of which called off a proposed merger with Locke Lord in late 2010—were in talks about forming a 1,100-lawyer firm. A spokeswoman for Blank Rome, which held merger talks more than a decade ago with Philadelphia-based Am Law 200 rival Cozen O’Connor, said in an email that the firm often explores “opportunities for collaboration and growth” but does not comment on or confirm details related to those discussions.
Nixon Peabody said in a statement to The Am Law Daily that it regularly holds discussions with other firms about issues related to the legal profession and other “areas of mutual interest.” Nixon Peabody considers “growth opportunities that are consistent with our strategic objectives and criteria,” the firm said, noting that it would be “inappropriate to comment on any specific discussions at this time.”
Of course, mergers themselves aren’t a panacea to the financial pressures facing many large firms today.
Earlier this week, The Am Law Daily reported on a study on the state of the legal market by the Georgetown University Law Center and Thomson Reuters Peer Monitor that found that firms shouldn’t chase growth simply to grow.
A client alert also released this month by Jeffrey Lowe, global leader of the law firm practice at legal recruiting firm Major, Lindsey & Africa, states that large firms need to adapt to the changing legal market or risk becoming obsolete.