November Flurry Propels 2013 to Law Firm Merger Record
With five weeks left, 2013 is already a record-setting year for tie-ups involving U.S. law firms. And as the latest spate of deals pushed the total number of mergers announced so far this year to 78—past the previous high of 70 set in 2008—The Am Law Daily caught up with legal consultants Ward Bower and Tony Williams to discuss the trend toward consolidation here and abroad.
For his part, Bower, a principal with Newtown Square, Pa.–based legal consultancy Altman Weil, believes this year's tie-up total has yet to reach its peak. "I expect we'll see quite a few more before the end of the year," he says.
Altman Weil's website tracks mergers as they are announced, and when the consultancy released its third-quarter merger report last month, The Am Law Daily noted that a record-breaking year was on the horizon. The mark officially fell last week when Milwaukee-based DeWitt Ross & Stevens merged with smaller Minneapolis firm Mackall, Crounse & Moore to form a 100-lawyer firm with nearly $50 million in annual gross revenue.
Though that newly merged entity is unlikely to make its way onto next year's Am Law 200, the industry's continuing consolidation could well qualify others for inclusion in The American Lawyer's rankings of the country's highest-grossing firms—or ensure that those already residing within in its ranks to improve their positions.
For a firm to land on this year's Am Law 200 list, it needed to bring in at least $90.5 million in gross revenue in 2012. Texas firm Strasburger & Price and New Jersey's Sills Cummis & Gross both made the cut by hitting that number, according to our reporting on firm finances. As it happens, both firms executed mergers in recent years. Sills Cummis absorbed New York's Silverberg Stonehill Goldsmith & Haber in 2009, while Strasburger, which has seen some merger deals unwind, picked up San Antonio's Oppenheimer Blend Harrison & Tate in 2011.
This week's merger activity included deals involving two Am Law 200 firms that may now be poised to climb higher. Early in the week, Milwaukee-based Michael Best & Friedrich added the eight-lawyer Vantus Law Group in Salt Lake City. And on Friday, Am Law 100 stalwart Baker & Hostetler announced that it will combine with Philadelphia-based IP boutique Woodcock Washburn. Like many of the mergers Altman Weil has tallied the year, both transactions will officially go live on Jan. 1, 2014.
While many law firm leaders and clients remain skeptical about the value of mergers, Bower notes that combinations do offer certain advantages.
"The big question is, 'What's big enough?'" Bower says. "You don't have to have 4,000 lawyers in 30 countries. But you do need to be big enough to attract some clients or keep business away from others."
Tony Williams, the head of London-based Jomati Consultants—with which Altman Weil maintains a strategic alliance—also sees benefits in firms joining forces. Indeed, while acknowledging that there are other models for achieving growth, Williams, a former managing partner of Magic Circle firm Clifford Chance, says a merger can be the most efficient. "Lateral hires and bolt-ons are a time-consuming process," he told The Am Law Daily when we spoke with him earlier this month.
Though that may be true, some large firms appear happy to take their time. Litigation and arbitration powerhouse Quinn Emanuel Urquhart & Sullivan, for instance, has used lateral hiring to drive its expansion into Europe. Other firms like Baker & McKenzie, Dentons, DLA Piper, Hogan Lovells, King & Wood Mallesons, Norton Rose Fulbright and Squire Sanders—which announced an alliance in Indonesia this week—have opted to expand by operating under the Swiss verein structure, which at allows partner firms to maintain separate profit pools.
Though the talks appear to have hit some snags, Dentons is now in the midst of pursuing a combination that would join its U.S. partnership with Am Law 200 firm McKenna Long & Aldridge. Asia-Pacific legal giant King & Wood Mallesons and London-based SJ Berwin saw their tie-up o live on Nov. 1. (SJ Berwin senior partner Stephen Kon, who led his firm's negotiations with Proskauer Rose three years ago, told U.K. publication The Lawyer in a video interview earlier this month that "the world has changed.")
Elsewhere, The Am Law Daily reported this week that Hogan Lovells has acquired 120-lawyer South African firm Routledge Modise, which separated from British firm Eversheds over conflicts last year. That deal comes about a year after The American Lawyer took a close look at the state of South Africa's legal landscape at a time when Africa's booming economies have led some to label the continent the last great law firm frontier.
Magic Circle firms Linklaters and Slaughter and May, as well as mid-tier British firm Macfarlanes, have recently sought to expand their respective presences in Africa through local referral and alliance networks, according to U.K. publication Legal Week. Williams notes that such arrangements can be difficult to work out given that there 55 countries in the region ranging from what he calls "failed to functional states."
Williams says merger activity has been slower in the U.K. than in the U.S., with most of the year's tie-ups involving personal injury and insurance recovery firms. Irwin Mitchell expanded its personal injury practice by adding Manchester boutique McCool Patterson Hemsi this month and Slater & Gordon—the world's first publicly traded law firm—recently acknowledged its discussions with mid-tier shop Pannone. (Like Altman Weil, Jomati also maintains a U.K. firm merger tracker on its website.)
One large U.K. merger looming on the horizon is the potential union between Lawrence Graham and Wragge & Co. The two firms publicly confirmed this week that they are discussing a deal that would create a combined firm with roughly $275 million in annual gross revenue, according to Legal Week.
Financial imperatives, of course, are driving much of the activity. Global accounting giant PricewaterhouseCoopers, which predicted a series of law firm mergers in Scotland last year, issued a report this month that indicated pricing pressures and a continuing push to cut costs cost could prompt nearly one in three law firms based in northern England to pursue mergers in order to survive.
Such economic considerations are not unique to the U.K. and its London-dominated legal market. The latest quarterly reports compiled by law firm-focused units at Citigroup and Wells Fargo show that demand for legal services remains stagnant across this country's multiple legal centers and that large firms have seen their revenues suffer accordingly.
Though there have been a spate of combinations involving U.K. and U.S. firms recently, there hasn't been a significant one announced since the Norton Rose Fulbright merger went live this summer. (In September, London-based litigation boutique Hage Aaronson combined with New York's Gregory P. Joseph Law Offices, a firm founded in 2001 by former Fried, Frank, Harris, Shriver & Jacobson litigation head Gregory Joseph.)
Asked whether there might be any transatlantic tie-ups between U.S. and U.K. firms in the offing, Williams says there has been a noticeable "slowdown in cross-border activity," while Bower notes that any deals that do materialize will probably take some time to complete.
"The fiscal year for the U.K. firms doesn't end until April 30," Bower says. "So you don't have that immediate pressure to get something done as you might have with a U.S. component."
Williams says the Australian market could still see some merger-driven growth, though most of the leading local players have already been snapped up. The once-hot Canadian market has also seen merger volume slow in the aftermath of Norton Rose's acquisition of Canadian firms Ogilvy Renault and Macleod Dixon.
In Asia, Williams notes that Singapore, Hong Kong and Indonesia are all seeing their share of activity, and that foreign firms are increasingly interested in entering South Korea and Malaysia (the latter's legal market is due to open up in 2014).
Still, the U.S. is where the merger wave is hitting hardest.
Consider the other deals announced in recent weeks: GrayRobinson acquiring a three-lawyer firm in Coral Gables, Fla.; Sunshine State rival Shutts & Bowen snagging a Sarasota office through a tie-up; Maine's Pierce Atwood expanding to 140 lawyers after picking up a Providence firm; and Ohio's Taft Stettinius & Hollister approaching the 400-lawyer mark by merging this week with 63-lawyer Chicago firm Shefsky & Froelich. (The latter is the latest independent Windy City firm to fall prey to an out-of-town suitor, according to Crain's Chicago Business.)
Those combinations pale next to some of the others being discussed. Patton Boggs and Locke Lord have confirmed recently that they are in preliminary discussions, while Orrick, Herrington & Sutcliffe and Pillsbury Winthrop Shaw Pittman continue to size up a potential union. The lobbying arm of Dow Lohnes, the bulk of which agreed to merge with Cooley in October, remains on the block.
Of course, as Williams notes, even with mergers reaching an all-time high, for every deal that gets done, plenty don't.
"Lawyers can be quite conservative," he says. "They can always find 10 different ways not to merge."