Altman Weil has updated their scorecard for law firm mergers in the first quarter. (The MergerLine page is here, and it was picked up in the press here).
The news is not surprising: no big deals were announced. In fact, one of the “targets” on the list involved two attorneys.
The lack of major acquisitions can be attributed to a lot of things: slow economy, an even slower pipeline of new work, major clients shedding law firms, and even old-fashioned issues like conflicts.
It’s probably never been easier for healthy firms to attract partners or practice groups from firms that are wavering. The real challenge for law firm managing partners and their advisors is this: what is a firm or large book of business worth in the new legal economy? Traditional metrics (e.g. revenues, profits, work in process) can’t be as reliable today, when major clients are demanding rate reductions and new staffing models. Some of this staffing doesn’t involve law firms at all, and if those initiatives (like legal process outsourcing or commodity legal offshoring) are even mildly successful, that work isn’t coming back.
Large mergers used to be seen as a sign of strength. Today, I’m not sure that’s always the case. It can be compelling in the international arena. But in the United States, how does a new multi-office bi-coastal law firm differentiate itself?
To me, the bottom line is this: two law firms merging is rarely strategic. As usually practiced, it a tactic, albeit an important one. One of my favorite definitions of strategy is attributed to Bruce Henderson, founder of the Boston Consulting Group:
Strategy is a deliberate search for a plan of action that will develop a business’s competitive advantage and compound it.
In an era of value pricing and services unbundling, a robust strategy may ultimately be rarer than a large merger.
