While on a long flight to the West Coast, a few thoughts occurred to me about the recent spate of abortive law firm mergers, with at least two (Deal 1 and Deal 2) called off in as many weeks.
I see that Leigh Jones of the National Law Journal has a helpful summary today of the latest action. One industry observer is quoted thusly:
“The most common reasons for a no-go are culture-related issues, more so than economic,” said Ward Bower, a consultant at Altman Weil.
Law firm merger talks are not breaking down at a higher rate, Bower said. Instead, the press is reporting the potential deals earlier in the process. Indeed, news of negotiation impasses often comes weeks or months after potential deals come to light.
I disagree 100% with this.
While I have no first-hand knowledge about either of these proposed deals, I think something much deeper than a lack of cultural fit is going on.
Today, two observations; and Friday, my laptop and Wi-Fi willing, I’ll give a bit of a crystal-ball treatment to the future of law firm mergers.
1. What’s the Upside?
In Deal 1, it was reported that a potential conflicts loss of $10 million each in business scuppered a deal that would have resulted in a combined firm with revenues over $425 million. To me, this shows the lack of any real synergy or strategy involved. In the corporate world, if you can’t find a measly 5% of revenue enhancements or cost savings, you don’t have a merger, you have a career-limiting move. Such a proposal wouldn’t even get past an initial run of pro formas. (Yes, I know some say “but law firms are different.” To which I reply: “not for much longer.”)
2. That’s our Story and we’re Sticking To It
Turning to Deal 2, a much larger combination was apparently a good fit on a number of metrics. To be fair to the firms, the deal tanked the same weekend that Lehman Brothers went Chapter 11 and Merrill Lynch sold itself to Bank of America. But concerns over some partners leaving the smaller firm and who knows what else led to the end of merger discussions. A statement noted:
“Heller is a fine firm with outstanding lawyers,” Mayer Brown said. “Like us, they have a long heritage of excellence in their work and service to clients. A merger with them would have offered potential benefits for both firms and our clients.”
Benefits to the firms? Probably. Benefits to some partners? Definitely.
But benefits to clients? Those I would like to hear more about.
And a short preview of Friday: it’s not pretty.
