By Andrew Maloney for Law.com
Legal analysts remain optimistic about a bounce-back in law firm merger activity after the pandemic slowed combinations last year.
Two new reports on law firm mergers in the first quarter of 2021 suggest there is “tremendous interest” in growth among firms of all shapes and sizes, and that the year after COVID-19 halted life in the United States could look more like the years before.
Altman Weil’s MergerLine report tallied 26 combinations in the first quarter, while a similar report from Fairfax Associates counted 18. Fairfax counts only mergers that went into effect during that time period, and combinations must include firms of at least five or more lawyers. The Altman Weil number reflects mergers that were publicly announced within the first quarter, even if they will take effect later.
Tom Clay, a principal at Altman Weil and one of the authors of the report, said the numbers show firm leaders “are returning to a longer-term, strategic focus after a year of crisis management and tactical triage,” and that it wouldn’t be surprising to see the number of announced mergers climb back over 100 by year-end—a threshold reached in 2017, 2018 and 2019, according to the Altman data.
Altman Weil counted only 65 combinations last year, but Clay noted that the industry began to see an uptick in merger interest in the fourth quarter.
“Of course, you never know how quickly people are going to move,” Clay said in an interview Tuesday. “So given where they were, with a very thin pipeline, to come up with 26 deals in the first quarter—I don’t think [mergers] will totally be back to where they were, but there’s a chance we’ll be back to ‘normal.’”
The Altman Weil report also noted overall deal size grew from where it was at the same point in 2020. The firm noted 27% of acquired firms had between 21 and 100 lawyers, while 14% of deals from this period last year were similarly sized. The digest also noted the deals are widespread geographically, which “signals a healthy resurgence across all U.S. regional markets.”
Those conclusions supplement a report last week from Washington, D.C.-based Fairfax. While the 18 effective combinations last quarter is a slight decrease from 21 during the first quarter last year, and the pace of merger discussions is “tempered by the limitations on in-person gatherings,” there remains a strong appetite for consolidation, Fairfax said.
“We continue to see tremendous interest among law firms in growth, including through merger, as disruptive change within the legal industry creates ongoing pressure for firms to build greater depth and scale,” the report stated, adding later: “We anticipate an uptick in active discussions in the coming months and a return to higher levels of completed mergers by the end of 2021 or early 2022.”
Lisa Smith, a principal at Fairfax who worked on the report, said in an interview that she expects the number of completed mergers in 2021 will “certainly” beat the 2020 numbers, but may not quite reach the same levels as 2016 through 2019. Fairfax counted 41 mergers last year, while the average for recent years, pre-pandemic, was between 60 and 65, she said Tuesday.
As far as the types of firms considering mergers right now, Smith said it’s “all over the map”—figuratively in terms of size, and literally in terms of geography. And, Smith noted, the pandemic has changed the merger calculus for some.
“We’re seeing an awful lot of firms looking at growth via merger that may not have considered it before,” she said Tuesday.
She added: “I think we would be seeing some of it without the pandemic, because I think the segmentation of the market and the scaling of the market is a long-term trend. But I do think the pandemic has maybe made people more willing to embrace change, and more willing to look at combinations that are outside their core geographies.”
The largest merger that was finalized last quarter was between Dentons and Des Moines, Iowa-based Davis Brown, which had 78 lawyers, the Fairfax report stated, while the next-largest was the combination between Cincinnati-based Dinsmore & Shohl and Indianapolis-based Wooden McLaughlin.
MergerLine noted that two Am Law 100 firms made acquisitions in Q1, with Crowell & Moring adding 24-lawyer Kibbe & Orbe in New York, and Winston & Strawn adding Los Angeles-based Scheper Kim & Harris.