Photo by Kevin Frayer (Getty Images)
Photo by Kevin Frayer (Getty Images)

Perspective: Law Firm Merger and Lateral Activity Starts 2016 With a Bang

Editor’s Note: The author of this post is a consultant to law firms. 

By Lisa Smith, Principal, Fairfax Associates

First quarter law firm merger activity was up from last year, according to research by Fairfax Associates. In addition to these formal law firm combinations, the first quarter was also notable for combinations that saw two large groups of laterals join other firms but were not officially mergers.

In the first quarter of 2016, Fairfax Associates tracked 21 completed (meaning that the effective date was in the first quarter of the year) mergers that involved at least one U.S. firm and with a minimum of five lawyers. This compared with 18 mergers in the first quarter of 2015 and is on par with the first quarter historical average of 20 mergers, when analyzing data from 2006 to 2015.

As we’ve observed for the past few years, the majority of mergers continue to be rather small combinations. In two-thirds of the mergers the smaller firm had five to 20 lawyers, while in the remaining one-third of the mergers the smaller firm had 21 to 100 lawyers. There were no mergers where the smaller firm had greater than 100 lawyers this quarter, although the Dickstein group that joined Blank Rome laterally had just over 100 lawyers.

The largest combinations were between Philadelphia’s Fox Rothschild and 82-lawyer Oppenheimer Wolff & Donnelly in Minneapolis, and between Squire Patton Boggs and 50-lawyer Carroll, Burdick & McDonough, based in San Francisco. In another large combination, Lewis Roca Rothgerber combined with Christie, Parker & Hale, a 40-lawyer intellectual property firm based in Los Angeles.

There were two cross-border combinations: DLA Piper with Peltonen LMR in Finland and Dentons with OPF Partners in Luxembourg. Late last year Dentons voted to approve a three-way combination between the firm and Cardenas & Cardenas in Colombia and Lopez Velarde, Heftye y Soria in Mexico, giving Dentons its first physical presence in those Latin American countries. The combination is expected to be finalized sometime in 2016, resulting in a firm with 7,400 lawyers, the largest in the world.

With regard to the two large groups of laterals that joined other firms, technically these were not mergers. The end result however, was the disappearance of at least one firm, Dickstein Shapiro, and the severe downsizing at another, the intellectual property firm Novak Druce Connolly Bove + Quigg. These moves were also a reminder of the Bingham McCutchen and Morgan Lewis & Bockius deal in late 2014, which saw most of Bingham McCutchen move over to Morgan Lewis in a large-scale lateral move. The Dickstein group joined Blank Rome, and about 44 lawyers from Novak Druce, itself the product of a recent merger, joined Polsinelli.

We expect to see more mega lateral deals in the future. We see a number of firms who are finding themselves in a difficult competitive position and looking for options. Often they’ve waited too long to explore merger as an option and may have lost some key partners and clients along the way. Given the instability, and sometimes a heavy infrastructure load relative to revenue, there are few firms who want to take on the risks of a full firm merger. Because the firms still have good practices and good lawyers a mega lateral deal, where the acquiring firm can carve out the pieces they want, may be an attractive option. It’s not without risk of course, particularly if the firm dissolves, but that is a risk that firms are increasingly believing they can manage.

As we head into the spring and summer we see a number of interesting potential combinations on the horizon and expect activity to continue to be robust this year.

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