Pennsylvania firms have frequently been the subjects of law firm mergers in one of the most active quarters for merger activity the industry has seen since the beginning of 2009, according to a report by legal consultancy Altman Weil.
Some of that activity was driven specifically by Pittsburgh-based firms while another merger was the result of an out-of-state firm looking to expand into Pennsylvania.
While firms across the country, including those in Pennsylvania, are looking for ways to increase revenue streams through new office and practice acquisitions, smaller firms in the Pittsburgh market have been a particular target as firms see the Marcellus Shale and resulting oil and gas work as a great potential revenue stream, Altman Weil principal Ward Bower told The Legal.
According to Altman Weil’s report, there were 21 law firm mergers announced in the United States in the first quarter of 2013, marking the highest deal activity since the first quarter of 2009 when 25 mergers were announced. In addition, there were seven law firm mergers announced last year that were finalized in the first quarter of 2013.
The overall increase in merger activity is being driven by two somewhat conflicting scenarios. Bower said firms are both more optimistic about the health of the market and therefore open to take merger risks, but at the same time also understand the market is much different than it used to be and growing much-sought-after revenue might be most easily done through a merger.
Pittsburgh-based recruiter Valerie Esposito of McAnney Esposito & Kraybill Associates said more firms now than ever before have approached her firm with an interest in growing, most always with an eye toward being the acquirer, not the acquired. She said they don’t always start with a merger in mind, but rather just want to grow in some capacity through new practice areas or group acquisitions.
While mergers can be a costly endeavor, Esposito said firms are undertaking a risk-benefit analysis.
"If a firm thinks it can gain an expertise or client base it wouldn’t otherwise have, it’s worth the risk," Esposito said.
The largest merger to be announced last quarter was the combination of Detroit-based Clark Hill — a 231-lawyer firm — with Pittsburgh-based Thorp Reed & Armstrong, an 82-lawyer firm.
Detroit was a hotbed of merger activity last quarter, with 282-lawyer Dickinson Wright announcing it would acquire 60-lawyer Phoenix firm Mariscal Weeks McIntyre & Friedlander.
"It appears that Detroit-based firms are expanding opportunistically into new markets with greater potential," Bower said in a statement. "This is a strategy that has been employed successfully in the past by firms based in cities with limited local growth options, like Cleveland and Pittsburgh."
Pittsburgh-based K&L Gates was among one of the seven firms that consummated a merger this year. Its acquisition of 300-attorney Australian firm Middletons brought K&L Gates to more than 2,000 attorneys.
Last month, 360-lawyer Pittsburgh-based Eckert Seamans Cherin & Mellott acquired 24-lawyer Trenton, N.J., firm Sterns & Weinroth. A Philadelphia firm also made it onto the merger radar screen. Chartwell Law Offices acquired eight-lawyer Miami firm Houck Anderson in February.
Bower said in an interview that U.S. firms are growing through targeted acquisitions designed to pick up specialty practices, expand in strong markets and add offices in new cities. He said almost all of the mergers involved firms in different cities.
Detroit firms have their own reasons for looking to expand, Bower said — namely because they are in one of the worst legal markets and any other legal market would be an improvement from where they are now, he said.
For Pennsylvania firms, the larger ones such as K&L Gates and Reed Smith are looking to acquire law firms as are many of the large firms based in Philadelphia, Bower said. There are some smaller firms in Pittsburgh that might want to be acquired, he said. A number of out-of-state firms have entered the Pittsburgh market because of the energy play by acquiring those smaller firms.
Philadelphia firms, as they historically have done, are looking to expand their geographic reach in ways that will make them a "credible, national firm," Bower said.
The competition in Philadelphia is strong and firms based there have to look to other markets where they can "throw their weight around a little bit," Bower said. New York, Washington and California continue to be growth targets for Pennsylvania firms, even if they already have offices in those locations.
Bower said firms like Dechert and Morgan, Lewis & Bockius have the cache to grow more easily in those markets, whereas that becomes harder for "the next tier down." Some firms in that next tier have been successful in growing in those larger markets, but they have to work harder at it, Bower said.