Law Firm Mergers: Lies, Damned Lies, and Statistics

We were greeted yesterday with the following headline on the ABA Law Journal Online: This confluence of two subjects struck me as odd, since I see them as rather unrelated. But I want to focus on the first, the alleged uptick in law firm mergers. (The discussion on business models is a fine one, featuring great people. But law firms won't merge because of new models; many will cease to exist, though). Back to the merger front, the source is a familiar one, the quarterly report by Altman Weil. From the article: There were 16 law firm mergers and acquisitions in the U.S. in the year's first quarter, and the biggest one saw the 3,500-lawyer megafirm DLA Piper bring in Australian affiliate DLA Phillips Fox and its 600 lawyers. "Although we expect 2011 to be a rebound year for law firm mergers, it's still too early to conclude that the market is back," says Ward Bower, a principal at law firm management consultantcy Altman Weil in a news release. Wait a minute, the leading merger "in the U.S." was one of an international firm buying a firm in Australia? Here is the list on the Altman MergerLine page (click on it if you can't read it): I'll summarize it for you. After the DLA Piper deal, the next largest at least involved a North American target, with Dickinson Wright nabbing 26 lawyers from Toronto's Aylesworth LLP. Now it might be fair to drop the DLA Piper number from any assessment of U.S. law firm mergers. If you do, the average size of mergers on the Altman Weil table goes from 43 to 8. If you decide not to drop if, for all of you stat geeks out there, the median size of mergers is six. As in pack. Those three mergers on the table of two lawyers each don't tell me much. I bet there were more like 200 of those in the first quarter. I have said before that outside of the international space, large U.S. law firm mergers are basically dead in the water. Smart firms that want to grow grab people (partners with premium clients) or practice groups (in growing sectors) or geographic outposts (like Dickinson Wright). Note that this last option is really hard to make work. People sometimes play nice for a while, let earn-outs run their course, but find it hard to really integrate into the mother firm culture. And they sometimes "go native" a few years later and leave. Some large law firms could have merged a few years ago but didn't, thinking that they would get a better deal just down the road. Now it's not clear that these same firms could get a free "get acquainted" lunch. So when I read a new U.S. law firms "merger" story, I look at it closely. And then I run the numbers.

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