Pandemic Pushes Law Firm Mergers to Near 10-Year Low (1)

Law firm mergers sank to a near 10-year low in the second quarter as the pace of deals all-but stalled as the sector grappled with the economic fallout from the coronavirus pandemic.

Only seven firm combinations were completed in the three-month period ending June 30, and all acquisitions were firms with 20 or fewer lawyers, Altman Weil MergerLine reports.

It was fewest number of deals recorded since the third quarter of 2010, when firms were reeling from the Great Recession. Only five firm combinations were logged as completed in that period.

“Uncertainty is the biggest stumbling block to deal-making right now,” said Eric Seeger, an Altman-Weil principal who predicted the third quarter would be slow as well.

Financial uncertainty around Covid-19 doesn’t appear to be derailing any blockbuster deals, but merger trackers predict that their complexity means few of them will take effect before 2021. However, some firms could be waiting for a stronger market before diving into a deal.

The decade-low consolidation climate is a reversal from a year ago when M&A activity was robust. Coronavirus took hold in the U.S. in the beginning of March and has steadily worsened with more than 2.6 million cases and more than 129,000 deaths as of this week nationally.

The pandemic has devastated the economy with law firm clients losing business and cutting millions of jobs. Law firms themselves, especially the larger ones, have trimmed staff and reduced compensation.

Last year, law firms completed a record 115 mergers, which was the highest number of combinations since Altman Weil began keeping track in 2007. But firms quickly suspended merger or acquisition talks and slowed down pending deals after the virus hit to focus on their own austerity steps.

“All big deals have been put on hold until management bandwidth improves and leadership teams are able to travel to meet in person,” said Tom Clay, an Altman-Weil principal.

Clay also said some firms possibly thinking about a merger don’t want to start talks holding a weak hand, and “are waiting for the market to turn positive.”

Fairfax Associates, a legal management consultancy which tallies firm mergers, also predicted a slowdown in merger activity.

“Most firms will ride out the uncertainty and begin 2021 fresh,” said Lisa Smith, a principal. “There is still a lot of interest.”

“Firms still are looking at growth as the right strategy,” and noted that negotiations involving smaller firms or smaller numbers of lawyers are easier to conclude.

Fairfax Associates bases its count on the effective date of a merger, and records only combinations of five or more lawyers, Smith said. Altman Weil keeps a tally based on announcements of mergers, and includes combinations of any size.

In the second quarter of this year, Altman Weil said that Cozen O’Connor added a nine-lawyer, Philadelphia startup boutique called Baer Crossey McDemus. Another big player, Littler Mendelson, in Los Angeles, acquired a 20-lawyer Polish labor firm called Paruch Chrusciel Schiffter.

The five additional combinations were centered in the Middle Atlantic. Four were same-state combinations in Florida, Maryland, Ohio and Pennsylvania. The fifth was a small Florida-Illinois merger.

Also, law firm Much Shelist announced on Wednesday that it had finalized is combination with business litigation firm Zfaty Burns, adding six new attorneys to double the size of its California office.