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!