Legal Mergers Rise on Firms’ Desire to Take on Biggest Rivals

Allen & Overy’s merger plan shows how law firm consolidation has ramped up in 2023 as big and middle-size players worry about losing share to industry giants.

London’s Allen & Overy said Sunday it plans to merge with New York-based Shearman & Sterling in a tie-up that will create a nearly 4,000-lawyer firm, making it one of the biggest in the world.

The combination, pending approval by partners on each side, would be at least the fifth this year of firms with at least 100 lawyers, compared with two in 2022, according to Fairfax Associates. The mergers include Orrick Herrington Sutcliffe acquiring financial services boutique Buckley, and Atlanta’s Smith Gambrell & Russell merging with Chicago’s Freeborn & Peters.

“There’s a fear of being left behind,” said Jeffrey Lowe, a partner at legal search firm Major Lindsey & Africa. “People see their competitors taking action and they may ask themselves, ‘Why aren’t we doing that.’”

The mergers underscore that the world’s biggest law firms have substantially grown since the start of the pandemic, adding to their depth of services and presenting a major competition challenge for both Big Law and mid-size peers.

Of the 52 largest US law firms that topped $1 billion in revenue in 2022, only two, Kirkland & Ellis and Latham & Watkins, exceeded $5 billion, according to American Lawyer figures.

Just three other firms—DLA Piper, Baker McKenzie and Skadden, Arps, Slate, Meagher & Flom—topped $3 billion in revenue, AmLaw data shows.

Allen & Overy and Shearman, through their merger, would surpass the $3 billion threshold, if each of the firms together collect the same amount of revenue they brought in separately during 2022, based on the American Lawyer data.

“It’s becoming increasingly apparent that without a merger you can’t catch” the biggest firms, said Peter Zeughauser, a law firm management consultant at the Zeughauser Group. “Firms are realizing the benefit of the scale and the impact of compounding gross revenue and profits per equity partners on the ability to attract and retain clients.”

Merger Interest

Big firms’ increased market share has coincided with an accelerated pace of recruiting in the industry. Kirkland & Ellis made over 800 lateral hires during 2021 and 2022, the most by far of any other Big Law firm, according to Leopard Solutions.

The most recent announcement won’t cause a “tidal wave” of merger announcements in coming months, but it may speed up talks already underway, said Kent Zimmermann, another adviser at the Zeughauser Group. He said several firms have called in the last 24 hours to talk about speeding up potential deals.

Stroock & Stroock & Lavan, which has dealt with the exits of several senior partners, has held merger talks with multiple Big Law firms. The Manhattan-based firm has been publicly linked to a merger since its 43-lawyer restructuring group left last year for a bigger law firm in Paul Hastings.

“We will continue to see a lot of activity,” said Lisa Smith, a law firm and mergers adviser at Fairfax Associates, citing multiple merger discussions between firms with 100-plus attorneys.

Bigger deals like the one between Allen & Overy and Shearman are harder to come by, however. Most tie-ups will continue to involve Big Law firms acquiring regional boutiques, which are becoming a more receptive audience, said Scott Love, the president of Attorney Search Group.

Love said that a year ago no boutique leaders he spoke with were interested in getting scooped up by a bigger shop. That has changed dramatically since then, as smaller firms battle the loss of talent to bigger shops, and as bigger clients increasingly look for firms that can capture more of their work.

The emerging consensus that bigger is better in the legal industry isn’t completely new, Lowe said. He noted that in the early 2000s, every firm “wanted to be Latham,” leading to a push to move into international markets and expand attorney headcount.

“A lot found out that it’s not so easy and it costs a lot of money,” said Lowe, noting the Great Recession may have put the skids on some of those firms’ plans.

“You have to be careful because you have not only the business side to assimilate, but the cultures as well,” he said. “Big Law is replete with a number of examples where it went well but probably three to four times as many examples where it didn’t go so great.”