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After Down 2020, Analysts See ‘Full-Bore’ Appetite for Big Law Mergers in ’21

By Andrew Maloney for Law.com

The COVID-19 pandemic slowed law firm mergers significantly in 2020, according to two new reports. But analysts who compiled the deal numbers say firms are eager to grow again in 2021, citing “extremely high” interest in combination talks—including for large firm mergers—and a desire to return to pre-pandemic strategy.

The latest MergerLine report from Altman Weil on Tuesday tallied 65 law firm acquisitions during the last calendar year, the lowest total since 2012. A report from Fairfax Associates last week tracked 41 mergers, the lowest in its dataset since 2010.

Fairfax counts only mergers that went into effect during the calendar year, and combinations must include firms of at least five or more lawyers. The Altman numbers reflect mergers that were publicly announced.

Lisa Smith, a principal at Fairfax who worked on that firm’s report, said she expects a turnaround in 2021. She said in an interview that the COVID-19 vaccine rollout and remaining complications from Zoom-based deal-making could leave a dent in the final numbers again this year. But “there’s absolutely no shortage of interest” in deals so far.

“The interest in combinations is extremely high, and we’ve already, just in the last week, gotten inquiries from multiple firms trying to look at their options and trying to figure out strategy and merger options for the year,” she said.

Tom Clay, a principal at Altman Weil who worked on the MergerLine report, said some aspects of the combination process are still lagging behind where they might normally be “because the pipeline got shut down and the research got shut down” when the pandemic hit last spring. But he said firms are eager to start assessing the landscape again for combination targets.

“They’re telling us right now, ‘Go full-bore,’” Clay said. “But having said that, there’s just not enough in the pipeline right now to say, ‘Oh yeah, we should get back to normal.’”

The MergerLine report noted the average size of acquired firms in 2020 was 18 lawyers and that most of the mergers targeted the southern U.S. Clay said he doesn’t expect those attributes to change much in 2021.

However, Smith, of Fairfax, said there now appears to be interest in deals involving firms of all sizes, including larger ones.

“There’s more interest among large, Am Law 100 or Am Law 200 firms than in the past, so that’s where we’re seeing most the change: the mergers of size, not just a 200-lawyer firm picking up 20, but mergers of equals,” she said.

Among smaller and midsize firms, those with between 50 and 200 lawyers, Smith said there’s an interest in building up practice areas where they feel thin.

“I think they’re just looking for more scale and to build up practice depth. And while you certainly see that through laterals, it’s expensive, not guaranteed and slow,” she said. “So I  think that’s certainly one theme among that group—a worry about being too small in core practices and specialty practices.”

Others have previously noted a potential merger rebound in 2021. Altman’s merger numbers in Q3 of 2020 suggested a bounce-back was imminent. Analysts from Citi Private Bank Law Firm Group and Hildebrandt Consulting also wrote at the start of December that more consolidation was in the offing. And Dinsmore & Shohl kicked off the combination slate this year by announcing a move into Indiana with the pick-up of 47-lawyer firm Wooden McLaughlin.

But the MergerLine and Fairfax reports put a coda on 2020. Fairfax’s report called the pandemic’s effect on completed mergers “a one-time aberration.” And Clay said that for all the problems caused by COVID-19, he was surprised the number of mergers got as high as it did.

“Law firms made it through this pandemic crisis really pretty damn well,” he said. “Particularly big firms. A bunch of them have said ‘It was one of our best years ever.’”

The largest mergers of 2020 were between Philadelphia-based firms, the Fairfax report noted, as Faegre Baker Daniels combined with Drinker Biddle & Reath to create Faegre Drinker Biddle & Reath, with 1,300 lawyers. Additionally, Troutman Sanders combined with Pepper Hamilton to form Troutman Pepper, with 1,100 lawyers.