10-4-21 As seen in Law 360 - Woods Oviatt's COO Mike Blanchard Talks Post Covid Law Firm M&As
Posted on October 04, 2021
Law Firm M&A Ticks Up, But There's Room For More
By Aebra Coe | October 4, 2021, 3:03 PM EDTThe legal industry is on track to log more U.S. law firm combinations this year than last, but firm mergers and acquisitions are a far cry from what the sector saw in the years leading up to the pandemic, data released Monday reveals.
Sixty-one law firms have inked tie-ups through the end of the third quarter of 2021, nearly reaching 2020's year-end total of 67 with three months left on the calendar, according to Law360 Pulse's new law firm merger tracker.
While on course to post a year-over-year increase, the industry's U.S. merger activity is leaps and bounds behind 2019, when 115 combinations were recorded.
Law360 Pulse has been compiling data on law firm combinations from news coverage and press releases for the tracker, which includes combinations involving at least one U.S. law firm and acquisition targets with two or more attorneys.
Industry experts say the lag in activity isn't a result of a lack of will, as a slew of law firms are thinking about or considering combinations this year. Instead, they say, pandemic-related factors have distracted management and hampered or slowed the deals, at times getting in the way of extensive in-person discussions as well as firms' need to integrate face-to-face once the merger has gone through.
"The numbers don't say much about firms' enthusiasm [to combine], they say something about their ability to close a deal," said John Cashman, president of legal recruiting firm Major Lindsey & Africa.
The difference between then — before the pandemic — and now is perhaps most apparent when it comes to large combinations, the data shows.
According to the merger tracker, so far this year, there has been only one instance in which the smaller of two merging law firms was considered a large merger target, or a firm with more than 100 attorneys. In 2020, there was one such merger. In 2019 there were six.
The vast majority of combinations so far this year — 49 — involved a small merger target, or a law firm with 20 or fewer lawyers.
Of the 11 middle-range combinations, where the merger target was between 21 and 100 attorneys, four saw a midsize law firm with between 300 and 400 attorneys acquire a smaller regional or local law firm of between 20 and 50 attorneys.
Thompson Coburn LLP added 44-attorney Hahn & Hessen in New York City. Spencer Fane LLP added 42-attorney Bone McAllester Norton in Nashville. In a rare transatlantic combination, Armstrong Teasdale LLP added Kerman & Co., a 32-attorney U.K. law firm. And Louisiana-based Phelps Dunbar LLP added 29-lawyer Cabaniss Johnston Gardner Dumas & O'Neal in Birmingham.
Most of the remaining mergers were inked by Dentons, which tends to strike a number of international combinations each year. The massive global firm tacked on 36-attorney Paz Horowitz in Ecuador, 25-attorney Guevara & Gutierrez in Bolivia, 52-attorney ACAS Law in Nigeria and a 5-attorney Venezuelan law firm.
There were also significant acquisitions by two large law firms — Crowell & Moring LLP, which picked up two boutiques, 24-lawyer Kibbe & Orbe and 61-lawyer Brinks Gilson & Lione, and Dinsmore & Shohl LLP, which acquired 47-lawyer Wooden McLaughlin.
The year's single big tie-up was between global giant Holland & Knight and 300-lawyer Thompson & Knight LLP. Although, a number of partners fled Thompson & Knight leading up to the merger, which means the ultimate number of attorneys that joined was not the full 300.
The year was a tough one for law firms considering a major combination, according to Michael Blanchard, a former law firm management consultant who is now chief operating officer at Woods Oviatt Gilman LLP.
In addition to the complications presented by the challenges to meeting face-to-face this past year, the pandemic has created a lot of uncertainty, which makes it hard for law firms to know how to plan for the future, Blanchard said.
"At the start [of the pandemic] no-one really knew what practices would be affected and for how long," Blanchard said. "It was different from any other storm faced by the industry."
Law firm management has made a massive investment in pandemic-related adjustments to the workplace and personnel, from remote working to health protocols and new hiring, said Bank Rome partner Barry Genkin, an M&A adviser to a number of types of entities including law firms.
And that has meant less time spent thinking about any major mergers.
"Everyone is still very preoccupied with dealing with COVID-related issues," Genkin said. "What happens when you do one of these large megamergers is [that] it's a significant drain on personnel, time, and energy of leadership, and it becomes a question of bandwidth."
"A lot of law firm management is taking the position that we can't afford the distraction of spending six to nine months on a major acquisition because we would be taking our eye off the ball, which is running the firm and making sure it is doing well and prospering," Genkin added.
Still, some law firm management consultants say they're busy, with a number of combinations in the works, including big mergers of equals. It's just that there has been a bit of a delay in clinching those deals as a result of the pandemic, they say.
Kent Zimmermann, a consultant at the Zeughauser Group who advised on some of the deals that closed this year, said his firm's merger practice is busier than it's been in 20 years "by a factor of about four."
"There's a lot going on at all sizes," Zimmermann said.
The principal reason why it's so busy, he explained, is because law firms want to see real growth, and are frustrated by the modest results that lateral hiring achieves. Firms put a lot of time into hiring laterals, but as fast as they can hire one, another attorney leaves.
"They realize they can't accomplish their strategic goals with organic growth and laterals alone," he said.
Major Lindsey's Cashman says he too sees a lot of interest among law firms in combinations, but they have been discouraged by "the inability to meet each other and evaluate a target's culture in person."
However, "that obstacle is passing as firms go back to work and people resume meeting face-to-face," he said.
As long as the economic picture continues as-is, Cashman said, for the rest of the year and into 2022, "I see more and more enthusiasm [for law firm combinations]. I don't see it slowing down."
--Editing by Pamela Wilkinson and Sam Bell. Graphics by Chris Yates.