There are 439,740 law firms in the United States in 2022. Almost two out of three practices are solo (32%) or small firms (2-9 attorneys, 31%) per the American Bar Association(ABA). There are about 100 law firms that have 500+ attorneys and the largest firm has almost 5,000 attorneys. From 2007 to 2019, the number of law firm mergers involving larger firms almost doubled from 60 to 115. Normal statistical variation occurs from year to year, but prior to the 2020 pandemic, the general trend had been upward:
|Average Mergers Per Year
|2008 - 2011
|2012 - 2015
|2016 - 2019
The Last 2 years: 2020 through 2021 has recorded 106 mergers or an average of 53 per year Among the most cited reasons for merger activity are:
- Geographical expansion
- Practice area extension
- Clients' needs, especially of national or multinational firms
- Financial benefits such as marketing clout or back-office consolidation
- Retirement of senior partners or other succession matters
International mergers involving thousands of lawyers or hundreds of millions in billing draw headlines. More typical are big firms acquiring smaller firms to break into new markets domestically or to scale efficiently. When firms of similar sizes merge, it is often to strengthen market presence. When located in different regions or specializing in different practices, there is the opportunity to cross-sell existent customers or deploy back-office automation to increase efficiencies or competitiveness.
The mergers with the highest frequencies (and not reflected in the table above) are:
- solo practitioners elect to partner with one or two other attorneys
- small firms add one partner, often due to retirement, move or philosophical differences
These smaller mergers usually are not accompanied by a press release and often escape media scrutiny. Often, incoming partner(s) bring along "portable business" - that is, their existent clientele and the related revenue stream. The impetus for these smaller mergers can be a generational change or a personal move. For the past five decades, W.K. McLaughlin Associates has helped facilitate such mergers
Our observation has been whether large, medium, or small, the most successful law firm combinations prioritize:
- cultural fit
- shared values
- sound governance
- financial benefit
- strategic goals
"Culture" can sometime be hard to define. Combined with "values" it is about philosophy, custom, and prioritization that coalesce as unobtrusive controls to help guide behavior and inform decisions. At one end, it encompasses dress code and office hours and should extend all the way to employee evaluation or conflict resolution at the other end. Recruiting, training, retention, retirement, time tracking, case management and compensation practices are substantive day-to-day issues that combining firms should reach common ground. In addition to human resources, risk management and information technology protocols should be established. With telecommuting or remote offices, thought should be given to network access, safeguarding data, client privacy and insurance coverage.
Certain metrics such as Revenue Per Lawyer or Profits Per Partner can be part of the evaluation process. Law firm mergers have the potential to affect attorneys, associates, and clients alike; as such, they should be carefully considered. For example, a conflict of interest might arise related to different clients represented by the combining firms. A potential merger might be dissuaded if a significant percentage of clients fall into this category.
Once mergers go through, much time needs to be spent on integration and implementation. For example, what are the back-office efficiencies? Is there superior legal aptitude in any areas? Which business development processes are most successful? What synergies, if any, arise from the combined entity? The more values that are shared, the fewer compromises that need to be made.
Other important questions to ponder:
- What are the economic or strategic advantages to gain from the combination?
- How will partners, other attorneys and staff be compensated?
- How will recruiting, retention or work from home/work in office be impacted?
- Are there other objectives - such as diversity, equity, or inclusion?
- What type of budget to establish for integration costs?
- How long should redundant systems be kept?
- Will there be a physical move?
- Will billing rates change?
- What are downside risks and how might they be mitigated?
- How and when will the merger be communicated to employees, clients, or the public / media at large?
The more questions that are anticipated and addressed, the less likely the firm will endure defection by employees or confidence crisis by clients. Avoiding these pitfalls will better enable combined firms to flourish post-merger. Established, partner-level lawyers looking for their next professional home should call 800-728-1964 to discuss their options. W.K. McLaughlin Associates can help.