For an increasing number of law firms, the pursuit of mergers and acquisitions has become a primary strategy for continued growth. Across the country, law firm leaders are finding that the demand for law services is flat and there was a record number of deals in 2015 as a result of heated competition among firms for new work.
According to Altman Weil, Inc. there were 91 law firm combinations announced in the United States in 2015—the highest annual total on record since the data was first tracked nine years ago. Surprisingly, the Nation’s top 100 firms still experienced slow growth in a year of record breaking merger activity.
Last year was a challenge for many Am Law 100 firms and it doesn’t appear that performance will improve dramatically in 2016. According to Altman Weil, market demand for legal services has failed to return to pre-recession levels in over 60% of US law firms; and 62% of firm leaders believe that erosion of demand will be a permanent trend in the legal market. Some of the slowed growth is due to the continued flattening of demand for legal services, declining economies in key European markets and a slow U.S. economy in the first quarter of 2016.
While we continue to see mergers of law firms in the Midwest region, the number of deals has decreased dramatically in the past 6 months nation-wide which has compounded the industry’s slow growth.
In the first three months of the year, data shows a 24 percent reduction in merger activity, according to analysis performed by the American Lawyer.
As firms continue to search for merger opportunities, according to Fairfax Associates, there is a delicate balance between discussing the business case for a merger with stakeholders and delving into the deal terms of the merger too early in the process. The research suggests we could see more mergers if firms achieve a good balance of the aforementioned factors. Fairfax says the following are steps that can help drive merger discussions:
- Spend time up front identifying potential deal-breakers and raise these issues early
- Discussion plans should have structure and be led by an appointed leader in the deal on both sides
- Focus on the business case which is ultimately how the two firms/practices will be more competitive together
If merger activity continues to decline, firms will need to consider other strategies to grow the bottom line, such as changes to pricing strategies and efficiency initiatives.
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