Recent times have given us two interesting announcements in relation to current merger trends. First, Norton Rose said that it will merge with the US firm, Fulbright & Jaworski. This is set to make the merged firm join the top 10 law firms globally, both by revenue and number of lawyers.
Separately, after much recent speculation, Osborne Clarke and Field Fisher Waterhouse (FFW) have confirmed that they have called off talks regarding a prospective merger. Interestingly, FFW was involved in failed merger discussions earlier this year with Lawrence Graham.
The Norton Rose merger indicates that firms of a certain size are still looking for a foothold in the US legal market, which is not surprising when companies in the US account for more than half of the spending on law firms worldwide. This announcement came shortly after news that SNR Denton will be merging with Salans and Canada’s Fraser Milner Casgrain early next year and that SJ Berwin is in talks with King & Wood Mallesons, which would open up new markets for the English firm in the Asia/Pacific region.
It is perhaps not surprising that there has been so much recent consolidation in the legal sector. Although it has repeatedly been said that there are too many solicitors’ firms – roughly 10,500 – it has taken the economic downturn, together with other factors such as the advent of the Legal Services Act, to start driving the current trend with any real momentum. Up to that point there were not necessarily any compelling reasons for firms to rush into mergers, particularly in our innately conservative profession.
But the playing field has undoubtedly changed. The continuing trend of globalisation has had an effect as demonstrated by the mergers I mention above. In the domestic market, firms see size, rightly or wrongly, as a way to give access to a new client base. There are many other reasons typically given for a merger, such as access to new markets, increasing firm profitability, expanding the range of services provided, and increasingly exploiting the opportunities of alternative business structures to build non-legal services.
From the outside it is easy to question whether the partners in the merging firms are collectively clear what the reasons for seeking a merger actually are, and what the associated implications will be. Every firm will have its own particular requirements when considering a merger and the biggest challenge is often about ensuring a good cultural fit.
History has shown that the risks can never be underestimated and any merger throws up its challenges. It is easy to forget just how many notable mergers have taken place both globally, regionally and in London over the past 18 months. Examples include Clyde & Co merging with Barlow Lyde & Gilbert, Pinsent Masons with McGrigors, Beachcroft with Davies Arnold Cooper, Bond Pearce with Dickinson Dees and Shakespeares with Harvey Ingram.
The interesting tie-up between the Australian stock market-listed firm, Slater & Gordon, with Russell Jones & Walker, certainly shows that change is afoot.
But let me go back to the other recent headline concerning the non-merger of Osborne Clark and FFW. The two firms cite differences between their operating models as the principal reason for not proceeding. Better for both sides to recognise early enough in their negotiations that problems exist which they believe won’t, or can’t, be resolved. A significant factor in the ultimate success of any merger will depend on the firms’ reasons for merging being complementary and both being clear about the rationale and implications of joining forces.
Despite the obvious stumbling blocks, in my view, there will be a continuing trend of consolidation, particularly by mid-tier and larger firms, although the speed may be difficult to predict. I also anticipate that consolidation will continue to occur with new ABS entrants to the legal market joining with an existing law firm. What is certain is that there will inevitably be winners and losers.
Fergus Payne is a partner and joint head of the Partnerships & LLPs group at Lewis Silkin LLP