In the recent WSJ article “Stark choice for lawyers – firms must merge or die“ author Jennifer Smith reasons that due to client and competitive pressures law firms have a ‘stark choice: to ‘merge or die’. As a result, she says, there has been a ‘flurry’ of merger deals.
The author’s conclusions are hard to reconcile with the actual numbers relied on; only sixty deals world-wide last year (2011) which is understood to be based on the Altman Weil Mergerline. While it is hard to get accurate numbers of law firms per country, based on a rough guesstimate of close to 60,000 for the USA and say 30,000 for the rest of the world, this number represents a minuscule fraction. It leaves one to wonder what is happening to the other 99.9% of law firms?
Unfortunately headlines and statements like this appearing in a respected publication like the WSJ, when repeated, re-tweeted and commented on, can over time lead to unintended and unwanted trends in the legal profession. As I have written elsewhere, while lawyers are sometimes referred to as cats (the oft-repeated being hard to herd/manage etc.) law firms can be like sheep – if one respected firm does something (especially when the pressure is on) others are more likely to follow suit (remember the ‘wait and see’ attitude about staff cuts during the GFC?). It seems some firms will not do anything different until others have tested the water. We have all heard the question around the partners table “what are Able Bodied and Bloggs doing about this?”
Still on the numbers, 30% of the mergers involved very small firms of one to 5 lawyers and 70% were firms of less than 20 lawyers (there is no mention of partner numbers which will no doubt be smaller). No disrespect to smaller firms, but it is hard to imagine these having a massive impact on the profession.
But this is not just about numbers. Many of the merger and amalgamation deals referred to in the article would have been done not because of client or competitive pressures, but as an outflow of carefully thought-through strategies. I can think of many recent examples (most in the Australasian sphere) of mergers on anything but a ‘merge or die’ basis:
- the Perth office of National and international law firm MinterEllison deciding to merge with USA based Squire Sanders
- Moray and Agnew’s move into the Perth and Brisbane markets
- the merger of Deneys Reitz with Norton Rose in South Africa
- M+K’s successful mergers with firms in Sydney, Tasmania and Brisbane
- Advent’s move into south-east Asia
- Gilchrist Connell’s move into Perth
and there are many more.
Any call for merger as a natural or even automatic response to client or competitive pressures also has to take careful account of possible benefits and challenges flowing from mergers. Some of the potential merger benefits were thoughtfully outlined in a recent blog post by Ron Friedmann. I would add brand to the benefits he discusses – any merger should ideally enhance the brand of the resulting name-firm.
Challenges are many and invariably include one or more of the following:
- stress caused by uncertainty
- significant direct and indirect costs
- distraction of existing partners and management staff in both entities
- aligning different cultures
- facing up to the surprising amount of work which is involved post–merger
- the time and stress involved in reconciling client issues
Merger or amalgamation can be a highly satisfactory way forward for a firm. It should however be part of a carefully thought through strategy and the realisation of a strategic objective and vision rather than simply a response to market and client pressures. Those pressures will always be there and undoubtedly have increased dramatically in recent years but mergers, in my view, will never be an automatic counter to these.