Following up on last week’s merger viewpoints, I’ve pulled this post off a bricked laptop and split it into two parts.
Today, why there will be fewer law firm mergers; this Friday, why most of those that close will not make strategic or tactical sense.
Fewer law firm mergers
First off, there’s a temptation to somehow link the failure of a few recent law firm mergers to the instability in financial markets. I don’t think this is what’s really going on. The trends affecting large law firms are not as volatile, but they are more long-term, and may thus be more severe.
I love metaphors, and I’m still searching for one that describes the law firm merger situation. The most obvious one is Musical Chairs–the song is about to end for many firms and they are trying to partner up before the music stops and they have to find a seat.
But that doesn’t describe fully what’s really going on. It’s one thing to scramble for a bigger piece of the corporate client pie, and to put together a deal to get it.
But this pie is shrinking:
1. clients are talking to each other;
2. they are converging on fewer firms;
3. and expecting those firms to work differently;
4. and certainly bill creatively;
5. they expect technology to streamline, simplify and recycle work; and
6. clients are really beginning to see innovation as an indicator of legal skill and service quality.
When you take these together, it means less work for fewer firms. It also means to me that the decades-long bull run for large law firms as a group is over. Some will do well, a few splendidly. But the steady growth of rates, revenues, and profits for the Global 250 as a group is not sustainable.
As the clients converge; the firms start to diverge.
Friday: we’ll close this trilogy with why it’s very difficult for a major law firm merger today to make strategic or tactical sense.