Despite the seemingly “good” year that 2018 was for many law firms, experience tells us that ”good” can be  a relative thing.  While 2018 performance data compares favorably to the data from the prior years following the Great Recession, all is not completely rosy.  Today’s law firms face more competition than ever as market share is shrinking, and the industry is being disrupted in multiple ways.

The recently released Thomson Reuters State of the Legal Market 2019report provides some industry information about how the 2018 results should be viewed.  The report concludes that despite good results last year, a robust round of “high-fives” should be tempered.  As Thomson Reutersnotes, shared competitive industry information, technological advances, client control of legal service use and terms, greater competition among law firms and other resources, have all greatly altered the legal services market. This change in landscape has, among other things, stimulated a war for talent, causing valuable lawyers with valuable clients to move from one firm to the next in free-agency run wild.

In this challenging world, law firms are looking for solutions.  As one answer, some law firm leaders are considering merger.   While merger is not a panacea every time, there are four good reasons the idea of merger should be discussed by law firm leaders.

Attracts and Preserves Talent.  The law firm of today is engaged in a war for talent.  The competition comes from other law firms, clients that have built up their own legal departments, and innovators that provide legal services through non-law firm platforms.  The increased competition has caused the lateral movement of lawyers with business to reach an all-time high.  Not only are most firms finding themselves looking for talent in this fluid market, but their own key players are in danger of being poached away by other firms. A merger can create a bigger platform and financial opportunity that law firms can use to lure and retain talent.

Expands Expertise. As clients grow and prosper, they often need more expertise if their growing legal needs are to be met.  A firm’s substantive capabilities may begin to fall behind the needs of clients, or the direction the law firm’s market is headed.  A merger with the right firm can jump-start an expansion of substantive capabilities that can keep pace with clients and industries served.  Relying on organic growth of expertise may prove too slow. And while hiring the needed expertise through the lateral market may work, a merger may advance the ball more quickly and effectively.

Become Better Positioned to Compete.  The competition law firms face is greater than ever.  In addition to the traditional battles with other law firms, competition now means trying to wrest market share from client in-house legal departments, accounting firms, and alternative legal service providers.   A broader platform that a merged firm enjoys may make it possible for the law firm to slow the client’s interest in moving away from a smaller firm that has more limited offerings.  A firm with expanded expertise and talent is less likely to be disregarded than a smaller firm that has allowed itself to be languishing in the status quo.

Makes More Likely Greater Non-Lawyer Investment.  In its report, Thomson Reuters shares data that reflects an increasing investment by law firms in things like technology, marketing and business development, library resources, outside services, and recruiting.  These investments are now occurring after years of expense cutting and signal a concerted interest in investing in the future.  While size alone does not guaranty the ability to likewise make these kinds of investments, a larger platform with increased revenues may make investing in the firm’s future more likely a part of a firm’s strategic conversation.

Is your law firm losing talent, losing market share, and unable to invest in its future?  If so, the idea of merger should be discussed.