Mergers increase following dry spell

Legal management consulting firm Altman Weil reports that through September 2011, law firm mergers nationwide are up 79 percent compared to last year.

According to the firm’s “MergerLine” statistics, among the 46 mergers announced by Oct. 3, 19 were cross-state partnerships. Ice Miller’s merger with Columbus, Ohio-based Schottenstein Zox & Dunn is one such union. One week before the Ice Miller announcement, rumors were confirmed that Baker & Daniels has been discussing a merger with Minneapolis-based Faegre & Benson. While some people may be wondering if Indianapolis has merger fever, it’s more likely that what’s happening locally, and nationally, has been in the works for a while.
 

Altonji

Joseph B. Altonji, principal founder of the Chicago-based firm management company LawVision, explained that mergers – from the time conversations between two firms begin until the deal is complete – take time.

“When we had the initial skid in mergers – when everything went crazy at the end of 2008 – basically everything that was going on back then got put on hold,” Altonji said. During 2009, merger activity idled before picking back up in 2010.

“I think if you are sitting in the category of multiple years of weak performance, you start to have to think about: what’s our future? How are we going to change this course?” Altonji said. And the answer to that question, for some firms, is to expand their reach through a merger.

The urge to merge

Carole Silver, professor at Indiana University Maurer School of Law, said that sometimes the impetus for merger is when a firm realizes it has grown as much as it can in a geographic area, and it wants to reach other markets.

She said firms might try to expand their client base by sending a trusted lawyer from their office to another location, with instructions to find new clients and build the satellite office one lawyer at a time.

Silver

“But that’s slow, and it’s risky,” Silver said. “More often, a client will say: we have business in location X, would you please send a lawyer to location X?”

Without contacts and resources in “location X,” a firm may find that what makes more sense is to attempt to merge with a firm that already has connections and clients in the target geographic area. Firms may also be looking to expand their catalog of services, by courting small firms with specialty practices.

“We’re in a market today where the total volume of legal services needed really hasn’t been growing since the recession,” Altonji said. “The only way you can grow is by acquiring market share.”

Altonji said that firms may have trouble expanding their talent pool in one geographic area without running into conflicts, and that’s why firms may need to look across state lines for a suitable partnership.

Altonji said that in recent years, international mergers have become more popular.

“Those kinds of mergers don’t happen every day, so there’s only so many possibilities,” he said. But in the past, international expansion was either not an option or was incredibly difficult.

Silver said that at one point, a U.S. firm – if it had an office in Japan – could staff that office only with American lawyers. Eventually, regulations became more relaxed.

“As soon as that regulatory barrier fell away, the firms started taking advantage and hiring local lawyers,” she said. Firms soon began setting up offices in the United Kingdom, hiring local lawyers with more connections to the community.

Now, firms with a U.K. presence may be poised to enter a new market.

Wright

Del Wright Jr., assistant professor at Valparaiso University School of Law, said that India – despite performing many outsourced tasks for U.S. firms – has been a closed market for American lawyers.

“India just announced that they are considering opening their market … but they were initially going to open it more to U.K. firms,” Wright said. “But because the U.S. can merge with U.K. firms, there’s a chance that there could be a firm with a fairly strong India presence.”

While hiring local lawyers in other countries may help firms find the clients they need, it may have downfalls, too.

“What you lose is that relationship to the home office,” Silver said.

Making it work

“The question with mergers is how do you integrate?” Silver said. “Or can you continue to exist without thoroughly integrating? A general presumption is that a merger means you have to integrate … but I don’t know whether that’s true.”

Victor Indiano was an attorney for the former patent law firm of Jenkins Coffey Hyland Badger & Conard when it merged with Barnes & Thornburg in 1982. He stayed with Barnes & Thornburg for three years, then moved to Ice Miller, and later to Bose McKinney & Evans. “And then I finally decided I don’t play well with other children,” he said. He started the two-attorney Indiano Law Group in 2000.

Indiano equates an attorney’s relationship with his or her firm to a marriage.

“If you look at your friends and you look at your friends’ spouses, you’ll see that they’re married to very different people,” he said, adding that the traits one person values in a mate may be less important to another person.

He said that lawyers may expect reasonable income, the ability to have control over their own lives, job security and personal job satisfaction.

“Those factors balance differently at different firms,” he said. “After a merger, it is highly likely that the culture will change, which will cause some of the people in the merger to seek other situations.”

But as some lawyers leave large firms to start their own practices, some smaller and solo firms are hoping to unite with large offices that may have resources they lack.

“Up until 2008, we were in a world were everybody was growing … you didn’t have to think too hard to grow your firm, and now you do,” Altonji said. “Some mergers out there are alternatives to irrelevance.”•