Texas law firms were involved in at least eight mergers in 2018, including three of the five largest, and consultants who work in the Texas market expect a similarly active market in 2019, as the lure for top-notch laterals and the robust Texas market continues unabated.
“I would expect the merger trend to absolutely continue—a continued uptick nationally, quite frankly—but you will see that phenomenon in Texas right now,” said Gary Miles, president and chief executive officer at Miles Partner Placement in California.
Miles said the increasing separation between the haves and the have-nots, in terms of profitability, is driving more law firms, even those with strategic plans to remain independent, to consider mergers.
“It used to be smaller firms would look to be acquired or merge,” he said, but now shops of all sizes are considering combinations. “Now there’s a myriad of conditions where I think law firms start to say …, ‘Do we need a larger platform?’”
The eight law firm mergers involving Texas firms in 2018 were among 106 combinations announced in the United States, according to information compiled by Altman Weil MergerLine. That’s the highest total Altman Weil has seen since 2007, when the consulting company began compiling merger information.
“Almost everybody is a potential acquirer or an acquisition target in 2019—we have never seen so many law firms in play,” Altman Weil principal Tom Clay wrote in a report on the 2018 merger numbers.
He wrote that large and midsize firms are merging to obtain more market share with clients, to add or enhance practices, or to expand their strength in a market with high potential. He wrote that small firms are more likely to be “acting defensively,” merging based on concerns about the long-term life of the firm, a need for more capital, or as succession strategy.
Deals of All Sizes
The merger activity in Texas was exceptional in 2018 because of the size of the deals. According to Altman Weil MergerLine, acquisitions of firms with 21 or more lawyers made up only 20 percent of the combinations industrywide.
The largest merger of 2018 involved 900-lawyer Bryan Cave and 666-lawyer Berwin Leighton Paisner, a U.K. firm. But the next three largest mergers involved Texas firms: Houston-based Andrews Kurth Kenyon’s merger with Hunton & Williams, creating the 1,000-lawyer Hunton Andrews Kurth; Dallas’ Gardere Wynne Sewell’s combination with Foley & Lardner, creating a 1,100-lawyer firm known as Foley Gardere in Texas; and Dallas-based Strasburger & Price’s merger with Detroit’s Clark Hill, creating a 650-lawyer firm known as Clark Hill Strasburger in Texas.
The other five mergers involving Texas firms and tracked by Altman Weil MergerLine included one at year-end: Houston-based BoyarMiller’s acquisition of Young, Graves & Burt and two of its lawyers.
Miles said the ongoing merger activity reflects Texas’ very active lateral hiring market, as firms compete to hire laterals and keep their existing rainmakers at the same time. He suggests that any firm of 400 lawyers or fewer is at the least thinking about what it needs to do to compete, and a merger is one possibility.
Kent Zimmermann, a consultant with Zeughauser Group who has worked on a number of big Texas mergers, including the Hunton & Williams/Andrews Kurth Kenyon deal, and the Foley & Lardner/Gardere Wynne Sewell combination, said the heated competition for talent has prompted firms in Texas and elsewhere to “revisit” their strategic plans.
They’re asking “what options should be on the table to achieve their aspirations?” Zimmermann said. “So more and more firms in Texas and elsewhere are coming to the conclusion they should not have their eyes closed to the possibility of a combination if it helps them get where they want to be.”
Zimmermann said he expects more deals in Texas in 2019, simply because the market is becoming more competitive for high-quality talent.
“In many competitive markets, including Texas, there’s not enough people to go around or [enough of] certain types. Many firms talk about a shortage of high-quality associates in Dallas and Houston, midlevel associates. That part is consistent with the increasing demand,” he said.
Chris Batz, owner of The Lion Group in Kansas City, Missouri, said firms are continually trying to get into Texas, as evidenced by the number of out-of-state firms opening offices in Texas. A merger is one way of entering a market, he noted, and he expects some Texas mergers this year, even an “across-the-pond” merger if it makes business sense.
Batz said the big question is whether the Texas legal market has reached the “exhaustion point” for mergers. He said Texas isn’t there yet.
Three weeks into the new year, there’s already been a merger: Munck Wilson Mandala, a technology-focused firm based in Dallas, added an office in Los Angeles by merging with Hecker Law Group, an intellectual property and entertainment law boutique.
Meanwhile, firms continue to open offices in the Lone Star State, including Bradley Arant Boult Cummings, which opened an office in Dallas with eight lawyers from Sayles Werbner and also acquired Rogaliner Law Firm and its two lawyers. Missouri firm Lathrop Gage also opened an office in Dallas, hiring a group of toxic tort lawyers from Hawkins, Parnell Thackston & Young last week.
In explaining the move, Lathrop Gage’s managing partner, Cameron Garrison, expressed what seems to be a popular sentiment. “Dallas is a market we have had an eye on for a long time,” he said.