The evidence is unambiguous: mergers increase profitability. The merged entities resulting from intra-Am Law 200 combinations climb an average of 23 places in the profit per equity partner (PPP) rankings from the five-years before to the five years after the merger. Average compensation for all partners rises by a comparable amount—18 places over the same time period.
Conventional wisdom has it that mergers enhance profitability through increased revenues and reduced costs: more cross selling across practice areas and offices increases revenues; greater leveraging of scale economies reduces costs per lawyer. However, the numbers contradict this view: post-merger revenues are lower relative to competitor firms than are the sum of the predecessor firms’ revenues, and costs per lawyer increase markedly.
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