Why BigLaw Mergers Do—and Don't—Work
Major law firms merge hoping that two plus two will equal five.
But it can also equal four or even three—or higher numbers on the wrong side of the balance sheet, reports the American Lawyer in an article reprinted by New York Lawyer (reg. req.).
The U.S. offices of Bingham McCutchen, DLA Piper, Sidley Austin and Wilmer Cutler Pickering Hale and Dorr did better than Am Law 100 competitors in some profit categories, while Nixon Peabody and Pillsbury Winthrop Shaw Pittman did worse, the magazine writes.
It can be misleading, however, to focus just on short-term financial results; like other marriages, law firm mergers can be a difficult adjustment at first. While a merger can help a law firm gain more work because of a bigger platform, it can also lead to larger—and duplicative expensives. Strong initial profits, too, may only mean that the merger is being milked for short-term results, rather than the firm’s long-term benefit.
Also, “You have to ask where the component firms would be if they hadn’t merged; some would be nowhere near where they are now,” says consultant Bradford Hildebrandt of Hildebrandt International Inc., who helped plan several of the law firm mergers that American Lawyer analyzed. “Between three and five years, we certainly like to start seeing some results.”
Among the factors that helped those that have experienced above-average success are, in Sidley’s case, nearly identical per-lawyer revenue and profit, which reduced post-merger friction among partners, and, in DLA Piper’s case, a rapid acquisition of a national and international platform for firms that formerly had been restricted by a regional footprint.
For both, however, growth has come at the cost of losing some partners, the magazine notes (the price Sidley paid also included an expensive settlement in a groundbreaking employment discrimination case concerning de-equitized partners, as detailed in an earlier ABAJournal.com post).
Among the merged firms that have struggled a bit more to stay abreast of competitors? Post-merger turbulence among partners and, it appears, duplicative expenses and an emphasis on counter-cyclical practice areas may have played significant roles.
But firm financials, while important, aren’t everything, says William Lee, the co-managing partner of WilmerHale.
“We watch the numbers like anyone running a billion-dollar business does,” he says. “But some of the mergers are done for no reason but for additional revenue, and I think that might be a good short-term decision that may not be best in the long term.”
