Law Firm Mergers III: Let’s Make a Deal
September 25, 2008 | Filed Under Law Firm Trends
Someone once said good things come in threes. To debunk that, here is the last law firm merger rant for awhile. The first looked two recent merger attempts that didn’t close; the second as to why there will be fewer law firm mergers.
Today, a simple but possibly controversial argument: most large law firm mergers that do consummate in the coming years won’t make strategic or tactical sense. Or any real sense, for that matter.
I throw law firm mergers into one of four buckets: strategic, tactical, defensive, and desperate. Ready? Here we go:
1. Strategic This is your basic “let’s smash together a national or global firm in one fell swoop” deal. The problem now is that there are plenty of good national and global firms. Could there be a few more? I guess. But what’s the real appeal? Even given the elastic concept of conflicts, at some point you can only be so big. Global seems to make more sense than national for the time being. Do we really need another multi-office, coast-to-coast U.S.-based firm?
2. Tactical This common gambit is where large firm A picks up a smaller firm in a certain city or with a specific niche, say IP litigation. When a firm in the Midwest expands into Dallas or Las Vegas, it’s doubtful that the local incumbents will quake in their boots. One of two things usually happen. The natives get tired of supporting the overhead two time zones away, so they bolt. Or the clients that you chased there bristle under repeated rate increases and go with a true local firm. Not as much downside risk as a strategic merger, but still growing stale. Again, some room for these globally, if the firm actually has some sense of what clients want and where they are headed.
3. Defensive When someone ups and does a strategic or tactical merger, this is what we call what other firms do in the next quarter or two. “It was good enough for them, we should maybe try it.” If your best friend drove his bike off a cliff, would you, too?
4. Desperate This is a basic catch-all, when a law firm merger doesn’t fit into any of the three categories above, or when a firm is consistently on the prowl, to the point where good partners start to leave. (It’s doubly sad when a firm runs out of options, as one may do tomorrow. Update 26 Sept 08: It’s over; other firms are considering some tactical moves…)
There’s no doubt that some law firm mergers have worked out splendidly. However, today it’s not hard for clients to find good firms with fine lawyers. The growing scarcity is on the other side: firms finding, retaining and growing good-paying clients. (Update 26 Sept 08: a new report confirms this.)
The fact is that these good paying clients see law firm mergers as something of dubious rationale and little benefit.
So that’s it, time to move on. For me, the law firm merger wave has already hit the beach.
Law Firm Mergers II: Reality Bites
September 22, 2008 | Filed Under Law Firm Trends
Following up on last week’s merger viewpoints, I’ve pulled this post off a bricked laptop and split it into two parts.
Today, why there will be fewer law firm mergers; this Friday, why most of those that close will not make strategic or tactical sense.
Fewer law firm mergers
First off, there’s a temptation to somehow link the failure of a few recent law firm mergers to the instability in financial markets. I don’t think this is what’s really going on. The trends affecting large law firms are not as volatile, but they are more long-term, and may thus be more severe.
I love metaphors, and I’m still searching for one that describes the law firm merger situation. The most obvious one is Musical Chairs–the song is about to end for many firms and they are trying to partner up before the music stops and they have to find a seat.
But that doesn’t describe fully what’s really going on. It’s one thing to scramble for a bigger piece of the corporate client pie, and to put together a deal to get it.
But this pie is shrinking:
1. clients are talking to each other;
2. they are converging on fewer firms;
3. and expecting those firms to work differently;
4. and certainly bill creatively;
5. they expect technology to streamline, simplify and recycle work; and
6. clients are really beginning to see innovation as an indicator of legal skill and service quality.
When you take these together, it means less work for fewer firms. It also means to me that the decades-long bull run for large law firms as a group is over. Some will do well, a few splendidly. But the steady growth of rates, revenues, and profits for the Global 250 as a group is not sustainable.
As the clients converge; the firms start to diverge.
Friday: we’ll close this trilogy with why it’s very difficult for a major law firm merger today to make strategic or tactical sense.
Law Firm Mergers: Bridesmaid Revisited
September 17, 2008 | Filed Under Law Firm Trends
While on a long flight to the West Coast, a few thoughts occurred to me about the recent spate of abortive law firm mergers, with at least two (Deal 1 and Deal 2) called off in as many weeks.
I see that Leigh Jones of the National Law Journal has a helpful summary today of the latest action. One industry observer is quoted thusly:
“The most common reasons for a no-go are culture-related issues, more so than economic,” said Ward Bower, a consultant at Altman Weil.
Law firm merger talks are not breaking down at a higher rate, Bower said. Instead, the press is reporting the potential deals earlier in the process. Indeed, news of negotiation impasses often comes weeks or months after potential deals come to light.
I disagree 100% with this.
While I have no first-hand knowledge about either of these proposed deals, I think something much deeper than a lack of cultural fit is going on.
Today, two observations; and Friday, my laptop and Wi-Fi willing, I’ll give a bit of a crystal-ball treatment to the future of law firm mergers.
1. What’s the Upside?
In Deal 1, it was reported that a potential conflicts loss of $10 million each in business scuppered a deal that would have resulted in a combined firm with revenues over $425 million. To me, this shows the lack of any real synergy or strategy involved. In the corporate world, if you can’t find a measly 5% of revenue enhancements or cost savings, you don’t have a merger, you have a career-limiting move. Such a proposal wouldn’t even get past an initial run of pro formas. (Yes, I know some say “but law firms are different.” To which I reply: “not for much longer.”)
2. That’s our Story and we’re Sticking To It
Turning to Deal 2, a much larger combination was apparently a good fit on a number of metrics. To be fair to the firms, the deal tanked the same weekend that Lehman Brothers went Chapter 11 and Merrill Lynch sold itself to Bank of America. But concerns over some partners leaving the smaller firm and who knows what else led to the end of merger discussions. A statement noted:
“Heller is a fine firm with outstanding lawyers,” Mayer Brown said. “Like us, they have a long heritage of excellence in their work and service to clients. A merger with them would have offered potential benefits for both firms and our clients.”
Benefits to the firms? Probably. Benefits to some partners? Definitely.
But benefits to clients? Those I would like to hear more about.
And a short preview of Friday: it’s not pretty.
Ben W. Heineman Jr. - Wired GC Seminar
September 5, 2008 | Filed Under Seminars
The Wired GC continues its new seminar series, Wired GC-Off The Meter.
The second edition is Wednesday, September 24, 2008 at 1:30 p.m. EDT/10:30 a.m. PDT. The subject is “A Short Course on High Performance with High Integrity and features former General Electric GC Ben W. Heineman Jr. We will discuss Mr. Heineman’s new book for Harvard Business Press, and look at how change in the law is driving a linkage between performance and integrity.
The series available to the legal community without charge thanks to our exclusive sponsor, The Vallex Fund. This is not your typical web-based seminar: each every-other-month installment will be fast-paced, insight-oriented, and short (less than 45 minutes; we expect this one to be closer to 30 minutes).
Full details are on the dedicated series page; registration is quick, and allows you to attend the seminars live, or view them on-demand after. Also, when you confirm your subscription, you will get a copy of the series white paper: “Changing the Law: Metrics and Milestones.” It gives some hints as to future seminar topics as well.
Take 30 seconds to register; we have a virtual seat saved with your name on it.
Current subscribers to Wired GC -Select are already registered.
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