The legal media has been full of the recent news about Hammonds (the Leeds firm that is the 25th largest law firm in the UK with fee income in excess of £125m) being in merger talks with top 60 US practice Squire Sanders & Dempsey. If a merger were to proceed the combined firm would be among the top 50 global law firms with 37 offices located in 17 countries and with approximately 1,300 lawyers. Revenues would top £405 million.
This follows the news in June that Denton Wilde Sapte (number 22 in the lawyer charts with fee income of £170m) was to merge with US firm Sonnenschein Nath & Rosenthal to form SNR Dentonwith 1,400 lawyers spanning 18 countries, and a combined turnover of around £500m. And in May it was Lovells who tied up with Hogan & Hartson of Washington DC to create a “transatlantic giant” with 2,500 lawyers and revenues of around £1.1bn.
The majority of the largest UK firms are either already global in terms of their network or are the result of some form of merger – often with a larger US firm. So – is this the way forward for smaller and medium sized law firms who might not have the same global client base?
Most people understand the scale economies driver – being a larger firm means that the significant investment in technology, training, knowledge management, premises, support services, quality systems etc can be spread. Legal Week’s analysis of 2009-10 reported that average PEP across the top 50 grew to £524,500.
And increasingly, as the markets become more sophisticated, firms realise that they will need to have a certain critical mass in order to compete effectively for some types of work – particularly for large institutions and in the public sector.
The uncertainty around the impact of the Legal Services Act has prompted a spate of mergers amongst small and medium sized law firms too – safety in numbers to spread the increased costs of regulation and competition and to remain attractive to the brightest graduates. Sometimes, of course, as a last resort when the financial position of some poorly managed firms becomes unsustainable.
But a merger of a law firm is as much about a careful study of the people and culture as it is of the management accounts and client lists. Clients can become disaffected when they feel their law firm “outgrows” their business and they lose the personal touch of their preferred partner. Overseas firms who have provided a steady source of lucrative referrals in the past can take umbrage at their apparent exclusion when a merger introduces an exclusive international element.
And not everyone wants to join “corporate” world and all the bureaucracy and infighting that it can entail. Smaller firms can survive and indeed thrive in this new world of super-firms – and indeed the profitability of some of the smaller, niche practices can put the larger firms to shame. So biggest isn’t always best – and sometimes (especially where profits are concerned), small can be beautiful.
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