Big law firm mergers on the rise as firms step up race for industry scale

A Philadelphia law firm has acquired a Seattle rival. A firm founded in the Southeast has absorbed its Southwest operations. And two firms have voted to create a new, 1,600-lawyer giant that is expected to be among the 30 largest in the country.

Mergers came into focus as Big Law partners voted over the course of six days to approve mergers of large firms. Consolidation is accelerating as competitors seek scale to strengthen their credentials, gain access to clients and talent in new markets and spread the rising costs of running law firms across more lawyers.

“More and more firms are recognizing the benefits of scale and realizing that it’s hard to build enough scale with one-time assignments, side hustles and occasional group hires,” said Kent Zimmermann, a principal at Zeughauser Group, which advises on law firm mergers. “So they’re looking at mergers and acquisitions, and that’s true for a large and growing group of firms.”

Many of them are repeat customers: four of the six companies involved in recent mergers are products of previous mergers.

Merger talks are on the rise, but merging is not a cure-all. Many have ended in bitterness on both sides. Financials and company cultures can be difficult to combine, and partners often leave because of conflicts, layoffs or perceived slights. Large companies have historically sought saviors in mergers after falling behind financially, rather than merging in a position of strength.

New mergers emphasize different strategies.

Regional firms want access to broader platforms that will provide their clients with a broader set of practice groups. Top 200 firms want to expand into new geographies, selling to a new set of firms. Even top 100 firms want to break into the top tier of the market, which has grown revenue and profitability faster than the rest.

Customers are also feeling increasing pressure as they increasingly see benefits in outsourcing more work to fewer companies.

“Smaller companies have a much harder time recruiting and retaining talent,” said Howard Cohl, a Los Angeles-based recruiter with Major Lindsey & Africa. “And customer demands are driving that, too.”

Vortex Week

The mergers began last week with the news that partners from Troutman Pepper and Locke Lord had voted to complete the combination.

The deal creates a firm that would have had more than $1.5 billion in combined revenue last year. Troutman Pepper Locke will formally launch early next year. Firm leaders have emphasized that the expanded presence will help it compete on transactional, litigation and regulatory issues.

On Monday, Philadelphia-based Ballard Spahr announced it would merge with Seattle-based Lane Powell, creating a 750-person law firm with offices in 18 U.S. cities. Ballard Spahr leader Peter Michaud said the Pacific Northwest locations give the firm access to a new set of businesses.

A day later, Womble Bond Dickinson said it had agreed to combine with Lewis Roca, a West Coast-focused firm that reported more than $171 million in revenue last year, to create an entity with 1,300 lawyers in the U.S. and U.K. Merrick Benn, chairman and elected CEO of Womble Bond, said the two firms recognized the need to build scale to serve their clients.

Womble Bond is a firm with Southeast Asian roots that merged with a British firm in 2017. Troutman Pepper, Locke Lord and Lewis Roca are also the result of previous mergers, as is Lathrop GPM, which announced last month that it would acquire Silicon Valley-based Hopkins Carley on Oct. 1.

Cameron Garrison, managing partner of Lathrop GPM, said the success of the 2020 merger that created the firm “reinforces” its approach to working with law firms.

“We understood what we wanted to get out of this combination,” Garrison said. “When something goes that well, it makes you excited to look for new opportunities and sets the bar really high.”

Customer requirements

Companies are becoming increasingly sophisticated in how they choose outside legal counsel, said Lisa Smith, a principal at merger advisor Fairfax Advisors, with many becoming “more selective” about working with a smaller group of firms with a broad range of experience.

“They’re looking for a kind of breadth of specialist practices with depth,” Smith said. Fairfax Advisors worked on the Ballard Spahr and Womble Bond deals, but Smith said she was speaking broadly about industry trends. “Clients are definitely a major part of that. Firms need to respond to what they see in terms of client demand.”

Recruiters and advisers say mergers can also help smaller companies struggling with rising employee compensation costs and increasingly expensive technology, such as privacy protections or investing in new artificial intelligence tools.

Michael Heller, president and CEO of Cozen O’Connor, said he expects to see more top 200 law firms merge with top 100 firms. Competing with firms with 1,000 or more lawyers is becoming increasingly difficult for firms with a few hundred lawyers, he said.

“The fight for talent and investment in technology simply requires more resources than regional companies have,” Heller said.

Associates are seen as “an increasingly expensive resource,” said Marcie Borgan Shunk, president and founder of the Tilt Institute. They require business generators to keep them busy, retain profits and invest in growth, she said.

“Economies of scale help create broader platforms,” Shunk said.

Problems after the merger

However, mergers are not a panacea.

Last week, A&O Shearman, the product of a transatlantic merger completed in May, said it would reduce its global partner strength by 10%, close its Johannesburg office and wind down its consulting business. A&O Shearman has about 800 partners worldwide.

Mergers can take months or years to complete and are difficult to negotiate. Companies must find a partner with similar practices, economics, and culture. And after the deal is announced, mergers often lead to partner departures—either due to conflicts or layoffs.

There is a long list of mergers that have not lived up to expectations and failed to meet the expectations of companies that expected to find a new business partner.

“With any of these combinations, as with any sector, if there are practice areas that are no longer strategically relevant, they will be eliminated. If there are underperforming partners, they may also be moved down,” said Cohl of Major Lindsey & Africa.

“It all depends on how we define success in the future,” he said.