Category Archives: Lateral Groups

2023 and Big Law’s Accelerating Contraction

It was refreshing to hear Jonathan Harmon, Chairman of 189 year-old Richmond-based McGuireWoods, declare last week what most of his BigLaw peers are or should be thinking:  “We are looking to grow and aggressively looking to talk to firms who are of the mindset.  I believe that the market’s consolidating and that you’re going to have to have scale.”  See McGuireWoods ‘Aggressively’ Seeks Merger Partner, Chairman Says.   The extent to which McGuireWoods will be successful in its efforts to find firms to acquire or with which to merge remains to be seen, but we have no doubt that they are more likely to be successful than firms waiting for opportunities to come in over the transom.  Mergers and acquisitions are inevitably fraught with obstacles and challenges, and thorough market due diligence of merger and acquisition opportunities obviously maximizes the potential to find suitable partners while minimizing the risk of stagnation and failure.  As Harmon elaborated: “Finding the right firm to acquire, merge with, is hard,” recollecting an acquisition a few years ago that turned out to be a “disaster” as the new attoneys “weren’t culturally aligned” with the venerable Richmond firm.  Id.  You have to be aggressive, you have to expect that most of your conversations will not lead to a marriage, and accept that nothing ventured usually equals nothing gained and a passive approach is less likely to yield positive results.  As Harmon put it, “I’m more frank about it.  If you’re coy and you’re pretending ‘Hey, I don’t want to date,’ you may not get one.”  Id.  

The good news for Harmon and like-minded firm leaders is that there is a substantial array of attractive merger candidates for robust and healthy firms.  As to McGuireWoods, with gross revenues rising 16% over the last five years to its current level of just south of $1B and profits per equity partner increasing at an even faster rate over the same period to just south of $2M, there can be no doubt that they will be seriously considered as a merger partner by more big firms whether those firms choose to remain coy about their respective appetites for exploring or not.  Moreover, as the geopolitical climate continues to feel unstable and financial markets remain volatile and at levels substantially off their highs of two years ago, major players are likely to be less brash and confident about their ability to thrive on their own or remain competitive merely through organic or individual or small group lateral growth.  Finally, law firms are continually facing new competition from non-attorneys operating ventures seeking to provide comparable legal services at lower rates.  See id.   All of which will lead to more firms talking to one another, and more mergers and acquisitions. See also Law firm mergers gained steam in 2022, with more on the way in 2023, and Wake Up Call: Law Firm Mergers Apt to Rise in 2023, Report Says.  And see McKinsey’s 10 Principles for Successful Law Firm Mergers, which succinctly notes as follows:  “Market forces have led to the consolidation of a number of professional services sectors. In accounting, for example, the Big Four account for more than 60% of the U.S. market. There is good reason for this: research has shown that across industries, organizations with a systemic M&A strategy delivered better shareholder returns. Organizations that relied solely on organic growth, on the other hand, performed relatively poorly.  Legal services are not immune to this trend: consolidation is well under way, albeit not to the same extent as in other sectors. In 2017, the largest five law firms by revenue accounted for 8% of the American Lawyer 200 revenue pool. By the end of 2021, that figure had risen to 14%… [A]s market pressures intensify and the first $10 billion firms emerge, the case for M&A is becoming stronger.”  Id.

So excellent work, Jonathan Harmon, and kudos to you for being so refreshingly straightforward.  We are certain that McGuireWoods’ future is bright, and are on board to assist you and like-minded BigLaw leaders in helping to take your extraordinary firms to even greater heights!

 

The Shrinking Pack of BigLaw Front Runners

As we enter the final ten of days of calendar year 2017 and contemplate resolutions and goals for the coming year, we take a moment to shift our focus and glance into the rear view mirror at the twelve months we are soon to leave in our wake.   From the perspective of this market observer, BigLaw 2017 looks like mile 17 of a marathon, with a handful of firms racing neck and neck, leading a pack of elite runners which is growing smaller mile by mile.

In terms of strategy, dominance for law firms can theoretically be attained by organic growth, individual attorney or group lateral acquisitions, smaller firm acquisitions or the rare merger-of-equals, but with the race for global market dominance among the few remaining elite-of-the-elite international firms only gaining intensity and more major-city markets being effectively closed to potential late-comers, law firm mergers and acquisitions have increasingly been defining competitive strategy over the last two decades, with 2017 being a record-setting year with about 100 law firm acquisitions tracked.  See  https://biglawbusiness.com/law-firm-mergers-on-record-breaking-pace-in-2017/.

The venerable London based firm of Norton Rose is a case in point, its 2017 acquisition of former AmLaw 100 stalwart Chadbourne representing only a piece of their current merger plans and recent merger history.  See  http://www.legalweek.com/sites/legalweek/2017/06/30/chadbourne-name-disappears-as-norton-rose-merger-goes-live:  “Norton Rose, the product of a 2013 mega-merger between Houston-based Fulbright & Jaworski and London-based Norton Rose, has expansion plans beyond Chadbourne.  Since the February merger announcement with Chadbourne, the Swiss verein announced plans to unite with Australia’s Henry Davis York … Norton Rose has been through a succession of major mergers.  It merged with Australian firm Deacons in 2010, then in 2011 with Canadian firm Ogilvy Renault and leading South African firm Deneys Reitz. These were followed by a second Canadian merger with Calgary’s Macleod Dixon in 2012, while legacy Norton Rose’s union with US firm Fulbright & Jaworski went live in summer 2013. The firm also inked a deal with Vancouver-based firm Bull Housser & Tupper in September 2016.”

With AmLaw100 firms disappearing at the rate of about one every year and a half, the question of which among them will be the next to fade away is fodder for odd makers.   But look to 2018 to see more BigLaw acquisitions and consolidations than ever before as the leading pack in the race for global dominance continues to shrink and the rest of the market grinds to remain viable.

The Ever-Contracting Landscape of BigLaw

Chadbourne’s February 2017 melting into Norton Rose Fulbright continues the trend of AmLaw 100 firms dissolving or being acquired or absorbed by larger, stronger players at the rate of one every year or so since 1999, starting that year with Brobeck and since followed by other now fallen but once-titans Coudert Brothers, Rogers & Wells, Rosenman & Colin, Kronish Lieb, Brown Raysman, Thelen, Thacher Profitt, Howrey, McKee Nelson, Dreier, Heller Ehrman, Wolf Block, Dickstein Shapiro, Dewey & LeBoeuf and Bingham.   Current firm rankings thus inevitably cause BigLaw market observers to ponder which are the currently rising or waning power-players therein, which is the next to be doomed to the in-memoriam list, and which three in all likelihood before the end of this decade.  Who are the great sharks in the ocean of BigLaw and who are their likely prey?

It is no secret that not only the biggest and strongest U.S. based firms have an increasingly whetted appetite for smaller firms which will enable them to enhance their global major market presence, but their London-based competitors are particularly hungry as well (see, for example “British Firms Still Trying to Conquer New York“, and “Are we about to see more UK-US law firm mergers?”).   Law firm sharks generally first seek prey not only with compatible and ideally complimentary practice areas, profitability and billing rates, but also displaying signs of weakness.   We refer our readers to our earlier post entitled  37 Signs That Your Firm May Be Sinking for indicators as to when a firm may become an especially attractive potential acquisition candidate.

In the meantime, our smaller and weaker players are increasingly frenzied to overcome the threat of falling victim to the hunt generally by one or a combination of several means:  merger with a relative equal in stature and profitability, see, for example, “Law Firm Mergers Off To Hot Start In 2017” ; “Law Firm Merger Mania Continues in First Quarter of 2017“;  “Law Firm Mergers Keep Pace with 2015’s Record”);  so called “one-off” individual lawyer or practice group lateral acquisitions, see, for example, The Lateral Report: Moves Hit a Post-Recession High;  Lateral Love: A Near-Record Year for Lateral Hires” or developing or enhancing a special niche or other competitive advantage.  See, for example,  “5 Reasons Large Companies Are Turning To Boutique Firms“;  “Boutique Law Firms: The Future of the Legal Profession?

In short, in the ever-increasingly treacherous ocean of BigLaw, it’s now more than ever be or be eaten.  Our consultants at Hanover Legal remain on call to assist all our clients in assessing how not only to survive, but grow faster, more efficient and thrive.