Corporate & Securities Law

Law Firm Mergers III: Let?s Make a Deal

By John Wallbillich

Someone once said good things come in threes. To debunk that, here is the last law firm merger rant for awhile. The first looked two recent merger attempts that didn’t close; the second as to why there will be fewer law firm mergers.

Today, a simple but possibly controversial argument: most large law firm mergers that do consummate in the coming years won’t make strategic or tactical sense. Or any real sense, for that matter.

I throw law firm mergers into one of four buckets: strategic, tactical, defensive, and desperate. Ready? Here we go:

1. Strategic This is your basic “let’s smash together a national or global firm in one fell swoop” deal. The problem now is that there are plenty of good national and global firms. Could there be a few more? I guess. But what’s the real appeal? Even given the elastic concept of conflicts, at some point you can only be so big. Global seems to make more sense than national for the time being. Do we really need another multi-office, coast-to-coast U.S.-based firm?

2. Tactical This common gambit is where large firm A picks up a smaller firm in a certain city or with a specific niche, say IP litigation. When a firm in the Midwest expands into Dallas or Las Vegas, it’s doubtful that the local incumbents will quake in their boots. One of two things usually happen. The natives get tired of supporting the overhead two time zones away, so they bolt. Or the clients that you chased there bristle under repeated rate increases and go with a true local firm. Not as much downside risk as a strategic merger, but still growing stale. Again, some room for these globally, if the firm actually has some sense of what clients want and where they are headed.

3. Defensive When someone ups and does a strategic or tactical merger, this is what we call what other firms do in the next quarter or two. “It was good enough for them, we should maybe try it.” If your best friend drove his bike off a cliff, would you, too?

4. Desperate This is a basic catch-all, when a law firm merger doesn’t fit into any of the three categories above, or when a firm is consistently on the prowl, to the point where good partners start to leave. (It’s doubly sad when a firm runs out of options, as one may do tomorrow.)

There’s no doubt that some law firm mergers have worked out splendidly. However, today it’s not hard for clients to find good firms with fine lawyers. The growing scarcity is on the other side: firms finding, retaining and growing good-paying clients.

The fact is that these good paying clients see law firm mergers as something of dubious rationale and little benefit.

So that’s it, time to move on. For me, the law firm merger wave has already hit the beach.

Full post as published by The Wired GC on September 25, 2008 (boomark / email).