Saturday, November 24, 2012

What is the Significance of Major Combinations between Canadian and U.S. Law Firms?

Law firm consolidations are in the air.  Over the last couple of weeks, two major Canadian law firms have entered into combination agreements with U.S./UK counterparts. 

  1. Norton Rose (a British firm with a major Canadian presence) is merging with Fulbright & Jaworski, creating a firm with 55 offices and 3,800 lawyers.  Details here.
  2. Fraser Milner Casgrain is combining with SNR Denton (US-UK firm that swallowed up the legacy Sonnenschein law firm in 2010) and Salans, which is a European law firm original formed in France. The resulting firm will have 2500 lawyers in 79 offices and 52 countries worldwide.   Details here

In the video interview below, Jordan Furlong, a Canadian lawyer, journalist and consultant (Law21), views these developments as the beginning of a major sea change.

To my mind, the consolidations we are witnessing have a lot to do with flat worldwide revenues. Law firms become uncomfortable places when they are not growing. Yet, really big law firms seldom fail because failure requires that a large number of partners vote their feet. A 30-partner defection can be a lethal blow to a 500-lawyer firm, but not so much for a 2,500-lawyer firm. The larger number of lawyers provides managers with more time and latitude to figure out a longer term strategy. Big feels safer.  Further, once the consolidation is complete, the firm managers can thin the ranks of weaker partners, producing a stronger overall firm.  (That is the theory, anyway.)

[Posted by Bill Henderson]

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I would argue that if the wrong 30-lawyer group leaves, it can start a "run on the bank" that can bring down even very large firms. Isn't it plausible that law firms are doing something other than buying time? For example, if I wanted to bolster an energy practice or build one, I would have to think hard about combining with a blue chip Canadian firm. If I were Norton Rose and wanted to reach the huge Texas economy, joining with a great firm like Fulbright would be appealing. And, if many of my clients had a global reach, I'd have to think about logical ways to follow them around the globe. To be sure, law firm combinations may produce some opportunities for strategic reductions in partner headcount, but there has been lots of that going on outside of law firm combinations. You are right--this has to do with growing revenues. Law is a mature business in which revenue can be very difficult to grow outside of law firm mergers or acquisitions of lateral lawyers. Maybe we are simply talking past one another, but you seem to be reading more into these recent combinations than I do.

Posted by: Doug Richmond | Nov 25, 2012 3:04:47 PM

Doug, I agree with you that 30 lawyer group can start a run on the bank at any sized firm. Bigger firms just have longer fuses. And I think managers appreciate those long fuses because it gives them more time to avoid disgrace.

I made this point in an article in the June 2012 issue of the American Lawyer (called "Rise and Fall") that documented that, until Dewey, no firm outside the top 40 had, during the 25 year history of the Am Law 100, failed. Yet 10 had failed between 41 and 100. The only exception was Finley Kumble, which was a house of cards built on a star system, an mistake that Dewey appeared to make as well. Yet, between 41 and 100, the firms that merged looked virtually identical to the firms that failed.

So size is quite attractive to managers, who rely on partners to build clients to the firm.

This is not so say that mergers can't have big-time strategic value. The energy practice you highlight may be one of those opportunities. If so, Norton Rose and Fulbright created something with longer term value. Size (for the managers) and strategic value (for partners) is a compelling outcome in this growth environment.

Posted by: Bill Henderson | Nov 26, 2012 9:50:17 PM

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