Editor’s Note: The author of this post is a consultant to law firms.
By Lisa Smith, Principal, Fairfax Associates
As we head in to the last weeks of the year, it looks like merger activity among law firms for 2015 will be close to the level of the last two years.
Through the 3rd quarter of 2015 we tracked 42 completed mergers in the U.S., compared to 49 through the 3rd quarter of 2014 and 48 through the 3rd quarter of 2013.
Our statistics are based on mergers with at least one U.S. firm, and a minimum of 5 lawyers. They are also based on the effective date of the combination, rather than the announced date.
Below are the largest five tie-ups that became effective in the first three quarters.
- Locke Lord and Edwards Wildman Palmer (425 lawyers)
- Dentons and McKenna Long (312 lawyers)
- DLA Piper and Davis (Vancouver, 260 lawyers)
- Dykema and Cox Smith Matthews (118 lawyers)
- Nixon Peabody and Ungaretti & Harris (102 lawyers)
Beyond the third quarter, a few more mergers have already taken place in the 4th quarter, although typically many mergers announced in the 4th quarter have January 1 effective dates and are therefore counted in our 2016 statistics.
While the largest mergers always get the most attention, the reality is that these represent a small number of the total mergers. In 2015 we saw a bit of an uptick in mergers where the smaller firm had more than 100 lawyers, up to 5 through the 3rd quarter with at least one more in the 4th quarter. That represents 12 percent of the total, which is slightly higher than the 2 (4 percent) in 2014 and 5 (9 percent) in 2013. By contrast 50 percent of 2015’s mergers involved firms with 5-10 lawyers, 60 percent of 2014’s mergers, and 50 percent of 2013’s mergers.
While the year-over-year statistics are interesting, what is more remarkable is the longer term impact of mergers on the legal market. If we go back to 2007, and through the 3rd quarter of 2015, there have been 438 mergers, which represents significant consolidation.
We recently took a look at the strategy behind the mergers completed by AmLaw 100 firms between 2011 and 2014. Our analysis indicated that 41 percent of those mergers were driven by geographic expansion, with firms entering new markets or significantly increasing their presence in an existing market. A number of the new market expansions were driven by cross border mergers. Houston was also a popular destination during this period. 25 percent of the mergers were driven by practice or industry growth, with the addition of a boutique firm for example, or one with expertise in a particular industry. The remaining 34 percent were driven by both geography and practice needs.
Based on our work with firms we expect merger activity in 2016 to remain at the levels of the last few years.