The Arent Fox and Schiff Hardin planned merger shows law firms are shaking off a hesitancy to deals brought on by the Covid-19 pandemic.
Analysts expect a surge in activity after the pandemic slowed mergers to 33 this year through the third quarter and 40 last year, based on data compiled by Fairfax Associates. The consultancy tracked 59 mergers in 2019 and reported an average of 44 mergers per year from 2011 to 2020.
“It feels like everybody wants to talk with everybody,” said Kent Zimmermann, a partner at legal consultancy Zeughauser Group, who advised Schiff Hardin on the merger. “Our law firm merger practice is busier than it’s been in 20 years by a factor of about four.”
Arent Fox and Schiff Hardin on Wednesday announced their planned March 1 merger, which would create a top 100 firm by gross revenue. Called ArentFox Schiff, the new firm of 600 lawyers and staff will expand the geographic reach of what either had individually, reaching cities such as Boston, San Francisco, and Ann Arbor, Mich.
“What was really attractive to me and to our partners was we don’t really step over each other,” Schiff Hardin managing partner Joe Krasovec III told Bloomberg Law. “We really line up next to each other really well.”
Fairfax has said it expects a higher level of merger activity in 2022 following heightened interest in strategic growth.
Zimmermann said firms seek mergers in order to grow rapidly in strategic areas and remain competitive with the largest, most profitable firms. The pressure to scale is compounded by a tight talent market and record profitability.
“When they try to do that with organic laterals, the data says the net growth is not enough because they bring some people in, some people leave, and they feel like they’re treading water,” Zimmermann said. “That’s why more firms are looking at deals.”
An increasingly complicated industry has also made it more difficult for smaller firms to compete, Arent Fox chair Anthony Lupo told Bloomberg Law.
“Ten years ago, I would have said that a 250-person firm could have been a general practice firm,” he said. “I don’t think a 250-person firm can be a general practice firm anymore. There are too many new areas of law. You need to have people that are specialized in their area.”
That makes merging with another firm a more strategic and efficient way to scale nationally, said Arent Fox managing partner Cristina Carvalho.
Schiff Hardin sought a “merger of equals” with ArentFox and saw an opportunity to double its corporate, finance, and litigation practices, Zimmermann said. Lupo added that the merger resulted in many instances where “one plus one equals three,” such as the firms compatible practice areas and clientele.