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M&A Slowdown Flips Script on Biggest Law Firms Beating the Rest

Nov. 7, 2019, 9:56 AM

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we look at how smaller firms appear to be punching above their weight in the ever-important M&A market.

The big firms have gotten bigger. The rich firms have gotten richer. That’s been the prevailing story in the Big Law market for most of the post-Great Recession era.

So, it caught my eye when a survey released this week indicated the script might be flipping. The back of the AmLaw 200 pack, it seems, is suddenly outperforming the biggest and richest firms in one of the most crucial markets: M&A.

Thomson Reuters’ Peer Monitor Index said AmLaw Second Hundred firms have seen slightly greater demand growth than the top 50 firms through the third quarter this year. That is in large part due to a hotter market for the Second Hundred’s transactional services. Those firms have seen M&A demand, measured by hours billed, grow 5.5% this year, the index said. The 50 largest law firms by revenue saw demand fall by 1% this year.

This indicates the exact inverse of recent years. In 2018, for instance, the AmLaw 100 grew revenue by 8% while the Second Hundred’s top line rose by 3.1%. And that 4.9% difference was only the third largest delta between the groups over the past decade. In other words, it hasn’t at all been rare for the richest firms to outperform their counterparts a tier down.

What’s more, other measures of the legal market this year show the biggest firms struggling with demand growth.

Citi Private Bank’s Law Firm Group, for instance, said demand was flat for the 50 largest firms through the first half of the year. Things were slightly better for the Second Hundred, with demand ticking up by .4%. The larger firms still had better revenue growth—4.2% compared to 2.8%—largely driven by higher rate increases. (Citi’s third quarter results are scheduled for release next week.)

Gretta Rusanow, head of advisory services for Citi’s Law Firm Group, cautioned that the AmLaw 50’s performance this year is partly to blame on a tough comparison to a strong 2018.

“As the year has progressed we have seen an improving demand environment that has been spreading not just to the largest firms, but the Second Hundred have also been beneficiaries of that improving environment,” Rusanow said.

One explanation may be that the biggest firms have suffered the biggest hit from a broader decline in M&A volume this year.

Bloomberg data show global M&A value through three quarters of 2019 was down 10.6% from the prior year. The value of private equity deals, another financial driver for the nation’s richest firms, was down 4.4%.

In the hot M&A market of the recent past, large firms have soared. They’ve handled the biggest deals at premium rates. But they have left room at the table for smaller competitors that are also very ambitious.

One example is Morris Manning & Martin, an Atlanta-based firm with 210 lawyers that turned in a financial performance last year rivaling that of much bigger firms. Revenue there grew more than 7% and profits per equity partner more than 3%, according to AmLaw data.

The firm’s lawyers are well-known for closing technology deals across the country. Last year, they closed 150 and will exceed that this year, said David Calhoun, leader of the firm’s private equity practice. The firm competes “every day” with the likes of Kirkland & Ellis, Goodwin Procter, Cooley and other “great firms” in the space, he said.

But they typically handle smaller deals. In a recent example cited by partner Scott Allen, a large private equity firm turned to Kirkland to advise on the purchase of a Toronto-based company. Morris Manning & Martin is now representing that company in its own purchase of a Denver-based business.

“For a 200-person law firm in Atlanta, we have grown our market share to represent clients that would otherwise be working with those large firms,” Allen said.

Honigman is another Second Hundred firm with a strong private equity practice. The Michigan-based firm with less than 300 lawyers handled the fourth most U.S.-based private equity deals through the first half of the year, according to PitchBook. That puts the firm behind only Kirkland, DLA Piper and Goodwin Procter.

“In the transactional area, there are firms at the top of the chart who just keep moving upmarket,” said Honigman Chairman David Foltyn. “The market share is really being given to us. Some of it is the fact that those top firms don’t need to be in some of these deals.”

The decline in M&A volume so far appears to have disproportionately affected the biggest firms. One looming question is whether that dynamic will continue if deals dip further, a likely side-effect of a potential economic downturn.

The outcome in that scenario likely hinges on whether buyers of M&A legal services become more cost-conscious in a depressed deal environment. That would force the top firms to reconsider their aggressive rate growth strategy or cede market share to their Second Hundred competition.

There is some evidence the Second Hundred may perform comparatively well in a recession. As I wrote in May, back in 2008, the Second Hundred saw revenue slip by 1% while the Top 100′s top line fell by 3.4%.

Morris Manning & Martin’s Allen said the firm’s transactions practice has blossomed over the past five-plus years as private equity assets have surged. The firm’s “Atlanta rates,” he said, have also helped boost the firm’s annual performances.

“Every January we’ve been asking ourselves, ‘Will this continue?’” Allen said. “‘And how can we make sure it does?’”

Worth Your Time

On Leadership: Covington & Burling and Norton Rose Fulbright announced management changes this week. Covington will have a new chairman in 2020, the same time Norton Rose Fulbright will get a new U.S. managing partner.

On Big Tech Dollars: Sure, Big Law partners make good money. But it’s not Google money. Alphabet Inc.’s chief legal officer David Drummond made $27 million on a stock sale this month.

On Legal Battles: Davis Polk was named in a lawsuit alleging discrimination and retaliation against a former black associate, while O’Melveny & Myers secured a favorable ruling in a large malpractice case. Meanwhile, federal prosecutors charged a former Locke Lord partner with laundering money through a crypto scam.

On Crypto: Speaking of crypto, Quinn Emanuel says that it’s accepted its first payment from a client in Bitcoin, joining a growing group of firms that have said they’d consider taking this type of compensation. As has Bloomberg Law reported earlier this year, crypto payments can create ethical and practical quandaries for firms.

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

To contact the reporter on this story: Roy Strom in Chicago at

To contact the editors responsible for this story: Jessie Kokrda Kamens at; Rebekah Mintzer at