As we have seen recently, law firm combinations have continued at a brisk pace. In layman’s terms, most of the combinations are referred to as mergers although many are at best “merger-like.” Indeed, “true” mergers appear to be the exception and not the rule as law firm combinations continue to be announced.
Gina Passarella wrote in her The Legal Intelligencer piece Law Firm Tie-Ups Getting More Creative, Complex that transaction creativity can be essential in order for some law firm combinations to happen. Instead of walking away from complicated and difficult combinations, the pressure that some firms feel to grow or survive can stimulate creative thinking when impediments appear.
The transaction activity observed in the market signals a number of things. Mergers or other law firm combinations are not just for large law firms. Nor are they simply for firms thinking that one plus one equals three. As is always the case, firms of all sizes and circumstances think about their futures. That thinking is causing many firms to focus on growth, eschew reliance on organic growth, and turn to the alternatives of mass lateral hiring and/or mergers. So as firms seek practice depth, increased attorney head count and geographic diversification, the record number of mergers and other combinations noted is no surprise.
The large spate of transactions would not occur were it not for the fact that mergers or large combinations can suit many different firms facing many different circumstances. Firms of all sizes and predicaments look at merger or large combination as tactics that serve their needs. In looking back at many of the transactions reported in recent years, it can be said that most of the combination activity can be grouped into five general categories:
Rescue Combinations. Some of the more publicized combinations are those involving a firm hoping to survive that join, at least partially, with another firm smelling an opportunity. These combinations typically are least like a true merger but involve a large group jumping from the distressed firm to a more stable one. The distressed firm is left to liquidate and satisfy its original obligations-all without the help of the rescuing firm. Think Morgan Lewis/Bingham McCutchen and Blank Rome/Dickstein Shapiro to name two.
Defensive Combinations. These combinations often involve like law firms that have shrunk or otherwise are languishing. In order to provide a jumpstart and create energy, combining the two firms arrests the shrinking and malaise at both-at least temporarily. Although the combination can be helpful, leadership must look past the closing lest the combo amount to little more than a short-term solution.
Multi-National Combinations. These combinations get a lot of press and usually are reserved for firms enjoying an international footprint. For many of these transactions, the combinations join firms together into what is known as a Swiss Verein. Such combinations are far from a true merger and may amount to little more than a marketing alliance. In any event, the combinations tend to involve strong firms that are convinced that growth is a strategy unto itself.
Strategic Combinations. These combinations pursue a strategic need previously identified and the combination is a tactic designed to satisfy that strategic goal. Whether the underlying strategy seeks to add substantive capability a client needs, supplement an already existing area of expertise, or broaden a geographic footprint playing to the firm’s strength, the combination can make sense as long as the diligence does.
Traditional Combinations. Calling a merger or combination “traditional” can seem ill advised since all mergers or combinations are unique in some way. But combinations in which two firms joined together to maximize their strengths in lieu of battling to the death was a rationale for mergers/combinations more common in the past. These still happen, but they are not as prevalent as they once were.
Merger or large combination is not for every firm. Yet the reasons supporting a transaction of that type are not limited by a firm’s size or its particular circumstance. The activity in the market demonstrates that the tactic of merger suits far more firms that had been the case previously. Given your firm’s situation, is it suited for a merger or large combination today?
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