Law firm mergers in the first half of 2021 were on par with last year, but there are signs of more activity to come over the next six months and into 2022, according to a new report.
New data from Fairfax Associates, which tracks law firm mergers based on the effective date of the tie-up, showed there were seven completed mergers during the second quarter of 2021 for a total of 25 completed in the first half of the year.
These figures are in line with 2020, which saw 26 mergers in the first half of the year but is down from the historical average of 31 mergers in the first half of the year over the last 10 years, the report noted.
Though the numbers were down relative to previous years, it is “really still the hangover of the pandemic,” said Lisa Smith, a principal at Fairfax Associates. Last year there was a lack of confidence on where things were going related to the pandemic as well as logistical factors that contributed to the relatively lower level of merger activity, she said.
The largest mergers effective in the second quarter were done by Dentons, which completed its tie-up with the 86-lawyer Birmingham-based Sirote & Permutt and the 52-lawyer Lagos-based Adepetun, Caxton-Martins, Agbor & Segun, known as ACAS Law. Washington-based Crowell & Moring also completed its merger with New York-based Kibbe & Orbe and Shook Hardy & Bacon merged with Seattle-based Ragen Swan.
Though there was a lower number of mergers completed, and therefore counted in the Fairfax report, in the first half of the year, there have been a flurry of announcements of upcoming mergers made in the second quarter. Several large law firms have announced potentially transformative deals that could reshape certain markets as competition becomes fiercer for talent and work.
Florida-founded Holland & Knight announced it planned to merge with Texas-based Thompson & Knight, creating a 1,600-lawyer firm, in a deal set to close on or about August 1.
St. Louis-based Thompson Coburn said it would acquire the 44-lawyer New York-based financial and litigation firm Hahn & Hessen, and Crowell & Moring said it would acquire 60-lawyer Chicago intellectual property firm Brinks Gilson & Lione in its largest acquisition in firm history.
These announcements, many of which will become effective in the third quarter of 2021, are “a good indicator of interest level, Smith said, and will drive more activity into the second half and into 2022.
The benefits of scale are becoming clearer, like a higher profile and better performance on average for the larger, more profitable firms than the rest of the pack, said Kent Zimmermann, a consultant for law firm management at The Zeughauser Group. He has counseled numerous law firms on tie-ups, including Brinks on its recent merger with Crowell.
And, in an exceptionally active talent market for both partners and associates, firms appreciate the benefit of having a larger profit pool to attract and retain the best talent, he said.
“They realize it pays to be openminded,” he said. Firms, even those in the Am Law 50 and 25 range, are either discussing possible combinations or actively pursuing them, he added.
“I would not be surprised to see the number of large combinations tick up,” Smith said, noting that she and her team are seeing more interest in merger discussions right now among the larger firms.
“I think we’re seeing an increasing number of firms come to the conclusion that it’s very hard to achieve their aspirations with laterals alone because laterals fail more often than they succeed,” Zimmermann said.