For Growth’s Sake, That’s What Law Firm Mergers Are All About

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we look at how law firm leaders are warming to the idea that growth is a good thing. Sign up to receive this column in your Inbox on Thursday mornings.

Once upon a time in Big Law, it was impolite to admit that size matters.

Managing partners traditionally turned to a well-worn refrain when explaining a merger or group hire: “This is not growth for growth’s sake.”

It got so out of hand that more than five years ago I wrote one of my first columns on what I viewed as a bizarre, unprompted defense that only drew suspicion. I’ve still never quite understood: What’s so bad about growth, for goodness’ sake?

Well, the tide is turning.

A new wave of mergers has gripped the industry. And Big Law leaders are now talking about growth. They’re admitting it’s good, in some sense, to grow for growth’s sake.

Consider reports about a potential mega-merger between Hogan Lovells and Shearman & Sterling. Shearman is exploring a tie-up, “to create a much larger business,” according to Law.com, with the firm eyeing the $3 billion revenue mark as a crucial figure.

In other words, bigger is better.

Atlanta’s Smith Gambrell & Russell announced Tuesday that it’s combining with Chicago’s Freeborn & Peters, a move both sides gushed would create the 132nd largest US law firm by revenue.

“A combination could accelerate our growth in a way that single and small group lateral hires could not,” said Stephen Forte, Smith Gambrell’s managing partner.

Translation: It’s good to grow fast.

Describing Buckley’s newfound willingness to engage in merger talks—which last week led to a tie-up with Orrick—the firm’s co-managing partner said leadership was motivated in part because of feedback from partners who’d recently left the firm.

“What we were hearing from the departed partners was they were really enticed by a larger platform,” Clint Rockwell said.

That is, even your own partners prefer bigger firms.

One AmLaw 100 chair recently cut right to the chase: “It’s clear size matters in the legal industry.”

I’d once guessed that law firms’ fear of “growth for growth’s sake” was borne out of some awful, shared experience.

Perhaps it was the saga of Dewey & LeBoeuf, whose 2012 bankruptcy came just five years after its reach-for-the-stars merger. Indeed, a report in 2014 decried the scale imperative: “Growth for growth’s sake is not a viable strategy in today’s legal market.” (It did provide a lawyer’s caveat: “There is nothing wrong with growth per se.”)

Without knocking the “strategic” benefits of the aforementioned mergers, Big Law’s psychological block appears to be wearing off. Maybe growth can be good, per se.

The obvious question is: What’s changed?

The answer is simple: The biggest firms have performed best. As a result, the 100 largest firms more stratified than ever.

The country’s nine largest law firms last year generated roughly the same revenue as the 50 firms in the second half of the AmLaw 100.

The top nine firms added nearly $5 billion in revenue from 2020 to 2021—good for 30% of all revenue growth throughout the AmLaw 100 last year. That was, as you might expect, the most among any of the four revenue quartiles.

Those nine firms’ profits per equity partner grew by 23% on average—far outpacing any other revenue quartile.

Here’s an even more shocking stat: The two biggest firms, Kirkland & Ellis and Latham & Watkins, added about $2.3 billion in revenue between 2020 and 2021. That’s more than the combined revenue growth for the bottom 40 firms on the AmLaw 100.

In just about every metric that matters, the biggest firms did best.

Excuse me if this column dumbs down a more intelligent conversation. Nobody likes complex strategies cut down to pithy one-liners. And nobody wants to be reduced to numbers.

Yes, law firms should look for strategic benefits in their mergers—combining with firms that have strengths in similar practice groups, for instance. And, of course, a combination of the bottom 40 firms would not produce a standalone business that looked much like Kirkland or Latham. There is only so much room at the top.

But the trends are pretty clear: Bigger is better. Growing fast is good. And even your own partners prefer a bigger firm. Managing partners might get the message: For growth’s sake, we need to grow.

Worth Your Time

On Jones Day: It was a busy week at Jones Day, where new managing partner Gregory Shumaker reshuffled leadership positions. Partners Andy Levine, Randi Lesnick, and Vica Irani will oversee firm transactional work worldwide, Meghan Tribe reported. That came after James Dougherty, the former global head of Jones Day’s M&A practice, left for Davis Polk. Sion Richards is the new leader of its global disputes practice, taking over for Shumaker. The firm also hired David Nahmias, the former chief justice of the Supreme Court of Georgia.

On Freshfields: Alphabet Inc.’s Google turned to Freshfields Bruckhaus Deringer’s Eric Mahr to lead the defense in a lawsuit aiming to break up the company’s advertising technology business, Brian Baxter reported.

On Clifford Chance: The UK law firm promoted antitrust partner Sharis Arnold Pozen to serve as its regional managing partner for the Americas, Meghan reported. She replaces Evan Cohen, who’d led Clifford Chance’s Americas division for a decade.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.