Why law firms merge and why you should care

So it’s in all of the news, and I seem to obsess over it in my posts. But while we’re so busy practicing or developing a book, the business of law is moving at a fast and furious pace around us, sometimes without our understanding or appreciating what is happening, why, and how it may affect us.

Why do law firms merge? Why have so many merged recently? Why does any of this matter?

Mergers happen in all kinds of different circumstances and formats. Sometimes they are between equals: law firms having similar revenues, profits geographical strengths, sometimes there’s a big guy/little guy merger, and sometimes a merger is nothing more than a bail-out, with one firm stepping in to reap whatever benefits the firm may have while also preventing it from going bust. So if a firm’s in merger talks (like Squire Sanders and Patton Boggs), that can mean either firm is hugely successful, facing the abyss of financial ruin, or anything in between.

In my experience firms nowadays merge for three primary reasons.

1. Going International: This mindset seems to increasingly be driving law firm strategy. We have been and will continue to witness many large firms pursuing mergers with each other because there appears to be a fear that if they do not, other firms having world-wide coverage will be better suited for both success and survival, or because either new or complimentary markets may be found in a new country. Whether there is either an actual or perceived need to be present in places like Asia and Latin American, and, because building an international presence from the ground up is both time consuming and expensive, mergers are the ideal vehicle for accomplishing this.

3. Practice Area growth or expansion: Many firms will merge with others in an effort to either build a practice group or add complimentary practice groups or seek grow their geographic footprint.

4. Money, Money, Money: While the two previous three reasons had to do with expansion, this one has to do with consolidation. Remember the concept of economies of scale? With a more difficult financial climate, firms are looking at cost-savings, and any and all cross-selling opportunities generated by a merger.

So what?

Law firm mergers may seem of remote concern, but they actually matter a great deal. A merger can completely change a firm, from its culture, practice emphasis, geographic focus, strategy, business structure or compensation system. You could be working at a firm one day in their Trusts and Estates department, with a very laid-back atmosphere, a clear merit based compensation system, and tomorrow may come to find that the firm with whom your firm is merging will be eliminating your practice group, or you will now be compensated based upon the firms black-box, secret sauce approach, and life will be far more cumbersome with the new firm’s reporting requirements. Firms can and do change beyond all recognition.

If your firm has merged, or if you are not happy with the direction you see the new leadership of your firm heading, give me a call. The market is finally improving, and I have many opportunities that may be a better fit.

 

 

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