Smaller Deals Mark Another Big Year for Law Firm Mergers

Law firm mergers and acquisitions are poised for another strong year after record-setting volume in 2019 although blockbusters were hard to find.

Altman Weil MergerLine counted a record 115 tie-ups last year, which was slightly better than the previous one and the highest number since it began keeping track in 2007, the firm said in its annual report on the state of law firm consolidation.

Thomas Clay, Altman Weil principal and author of the report, expects a similar year ahead marked by a growing number of smaller combinations as firms.

“For many firms, it doesn’t make any sense to get fatter. It’s basic and less disruptive to siphon up lawyers, expertise and clients,” Clay said.

Any threat of broader economic headwinds would have little or no impact on firm tie-ups, he said. Instead, he expects the industry to follow the pattern of the past dozen years and continue to look for combinations in blossoming or booming locations, especially California, Texas, Boston, New York, and Atlanta.

“But the pickings will be slimmer,” he said, because of the number of mergers and acquisitions. “It’s harder and harder to find tasty morsels to acquire.”

The drive to shore up their economic base and expertise is behind the recent merger of two larger firms, Faegre Baker Daniels and Drinker, Biddle & Reath. Troutman Sanders and Pepper Hamilton also have said they are in combination talks. Each merger involves a firm based in Philadelphia, which has not emerged as an identifiable growth hub like Silicon Valley for technology or Texas for energy.

Last year, nearly 90 percent of the deals were acquisitions of firms with between two and 20 lawyers. Even tie-ups by the AmLaw firms were mostly acquisitions of small firms. The average overall size of acquired firms in 2019 was 18 lawyers, which is smaller than the prior year.

Larger tie-ups like the attention-getting 2018 union of Bryan Cave and Berwin Leighton Paisner to form Bryan Cave Leighton Paisner are not out of the question. But Clay said, “because those deals are more complex, they are slower to come together and can be more easily derailed.”

Fairfax Associates, which also tracks merger activity, had a somewhat different take. While Altman Weil tracks mergers as they are announced by the firms or reported in news outlets, Fairfax has said it counts completed mergers and does not count those that involve acquisition of a firm with fewer than five attorneys.

Fairfax’s 2019 tally included 59 completed mergers, which is lower than the 71 mergers it counted in 2018. However, its merger research team noted that the combination numbers in both years are higher than the historical average of 54 mergers per year recorded between 2009 and 2018.

The group, which advises firms on mergers, agreed that the bulk of tie-ups involved small firms, between five and 20 lawyers, and predicted there will be comparable merger activity in the coming year. Firms will “continue to look for ways to build their competitiveness, gain market position, and expand services for clients,” the group predicted earlier this month.

A Few Big Ones

Altman Weil’s tally found that last year, there were six combinations involving firms with more than 100 lawyers. The largest was the announcement by Faegre Baker Daniels, based in Minneapolis, and Drinker Biddle & Reath that they would form a 1,300 lawyer firm, Faegre Drinker.

Two midwestern combinations, also in the Minneapolis market, were Lathrop & Gage, a 240-lawyer firm based in Kansas City, merging with 155-lawyer Gray Plant Mooty to form Lathrop GPM. Taft Stennius, based in Indianapolis, linked up with 135-lawyer Minneapolis firm Briggs and Morgan to form a 600-lawyer firm.

Dentons also unveiled an initiative to expand its U.S. presence last year, linking up with two firms with more than 100 lawyers each. The global firm said it was carrying out a three-firm combination, adding 178-lawyer Bingham Greenebaum, headquartered in Indianapolis, and 144-lawyer Pittsburgh law firm, Cohen & Grigsby.

“Dentons is a wild card. It is aiming to add many new firms around the country,” said Clay. “The question is going to be whether there will be a surge of firms joining Dentons, which could add to the number of combinations.”

The Dentons model allows firms to retain some operational autonomy, but to be part of the Dentons network and gain operating efficiencies.

“Dentons’ stated intention to pursue multiple U.S. combinations in 2020 will likely shake up local markets,” Clay noted. Last year, it announced 12 cross-border combinations, adding another 300 lawyers in total from firms in Africa, Latin America, Asia and Asia Pacific.