Small law firms are continuing to look favorably on merging or being acquired by larger firms in 2012. The number of small firm mergers and acquisitions increased by approximately fifty percent in 2011 compared to 2010 according to a survey conducted by consulting firm Altman Weil. In fact, there have been approximately fifteen mergers and acquisitions in each of the past six quarters alone.
Small firm mergers account for the overwhelming majority of all law firm combinations in 2011. This trend sees no signs of slowing down anytime soon. In the first quarter of 2012, all U.S. law firm mergers except one involved the merger of two small firms or the acquisition of a small firm, i.e. a firm with twenty or fewer lawyers, by a larger firm. This industry consolidation sees no signs of slowing down in 2012.
The small law firms see these combinations as a way to do more work for clients by offering more depth in professional areas that were previously scant or non-existent, including in the areas of litigation, mergers and acquisitions and bankruptcy law. Moreover, the small firms’ clients are being acquired by larger corporations and, therefore, require bigger firms with a more extensive geographical presence to service their needs.
Small firms are traditionally unable to handle major transactions because they lack the manpower needed for such extensive matters. Hence, they view merging with another firm or being acquired by a larger firm as a win-win situation.
One recent combination of note involved the New York office of Philadelphia-based Montgomery, McCracken, Walker & Rhoads, which has 135 attorneys overall and 17 in its New York office, with the New York firm Kurzman Karelsen & Frank. In that combination, Montgomery McCracken acquired virtually all of the attorneys from the much smaller Kurzman Karelsen firm. In another recent transaction, Montgomery also took one name partner and two associates from the small firm DeOrchis & Partners.
The allure of Montgomery McCracken to clients is obvious-the firm offers a lower fee structure than its peers, charging between $450 to $650 per hour. The merger with the Kurzman Karelsen firm was a natural fit since the Kurzman firm had a similar fee structure. Now the merged New York office of Montgomery McCracken and Kurzman has plans to grow to a thirty-lawyer firm.
Yet another small firm merger that illustrates the reasons for the growing trend in small firm conbinations involved the boutique tax firm Andreozzi Fickess and Bluestein & Muhlbauer. The firm decided to merge in order to offer more services to their national and international clients and the now bigger firm can service even larger clients and handle even more complicated issues.
The merger trend is not limited to U.S. firms combining solely with other U.S. firms. Firms are also merging with foreign firms, thereby extending their international presence. For example, the San Francisco firm Carroll Burdick & McDonough recently combined with a small intellectual property firm with offices in Germany and Singapore. Also, the international firm K & L Gates extended its world-wide reach even further with its first foray into Italy by acquiring the Milan firm Marini, Salsi, Picciau.
Managing partners at the merged firms deny that financial considerations had anything to do with their decision to merge. However, legal consultants insist that the recession was a motivating factor in the firms’ decisions to merge because it provided them with a measure of financial security. According to legal consultants, in the past year-and-a-half there has not been enough work to go around and law firms were feeling the pinch financially. Firm combinations appeared to be the best way to survive the challenging financial situation.
Given the economy’s continuing lackluster performance, it should come as no surprise if small firm combinations continue for the foreseeable future.