Law Review: Firms merging to grow, stay competitive in flat market

Posted: December 04, 2013

More than just the merger of two high-profile law firms, the announcement that BakerHostetler, of Cleveland, plans to combine with Philadelphia's Woodcock Washburn L.L.P. is part of a trend that is accelerating as the economy improves and firms fight for market share.

The combination bears all the earmarks of a strategic business play, as most law firm mergers do these days.

Growth for growth's sake is so 2007.

BakerHostetler gains new offices in Philadelphia, Seattle, and Atlanta, and nearly doubles the size of its already substantial intellectual property team, while Woodcock Washburn gets access to a powerful litigation practice and a national legal platform - key to defending all those patents you obtain for clients.

And, oh, yes, there's Woodcock Washburn's long-standing relationship with Microsoft Inc. through its Seattle office. That is now a foot in the door of one of America's most desirable corporate clients for BakerHostetler lawyers focusing on litigation, transactional work, labor and employment law, and other areas, not just intellectual property.

It's a story that has been playing out with increased frequency as law firms look for ways to grow in a legal market in which business is flat.

Law-firm mergers essentially bottomed out in 2009, as firms struggled to stay ahead of the economic tumult of the recession. But they have come back strong, says Tom Clay, a specialist in law firm mergers at the Newtown Square-based legal consulting firm Altman Weil Inc.

Firms that were cautious a few years ago are less so these days.

"During the recession, a lot of firms did have the strength to continue to do acquisitions, but they put the brakes on when people became concerned about the legal market, and they basically drew back from their strategy," Clay said. "And they began to deal with issues like productivity and reducing overhead."

But now there's a mini merger-and-acquisition boom unfolding. Altman Weil says there were 58 law firm mergers through the end of the third quarter, up 41 percent for the same period the year before. The great majority of these were acquisitions of small firms by larger ones - that pose less risk.

But why, if there are these risks, are the deals happening in the first place?

The simple answer might be that it is riskier not to. The legal marketplace is fiercely competitive, and every law firm fears becoming the next Dewey & LeBoeuf L.L.P., the erstwhile global giant that filed for bankruptcy last year, or Wolf Block, once a gem of the Philadelphia legal world, which went belly-up in 2009.

Clients are dickering over bills and taking longer to pay, at a time revenue growth is flat. The easiest way to grow is to recruit lawyers from other firms, either individually or through "lift-outs" of entire practice groups. Acquisitions of small firms accomplish the same purpose.

Alan Hoffman, cochairman and managing partner of Blank Rome L.L.P., said the firm bulked up in Houston, where it added eight lawyers through a merger with the firm of Bell Ryniker & Letourneau in August. The Bell Ryniker lawyers linked up well with Blank Rome's maritime law practice and its energy team. Blank Rome says it has the largest maritime practice in the United States.

Cliff Goldstein, CEO of Philadelphia's Chartwell Law Offices L.L.P., which merged with Houck Anderson, of Miami, in February, says the firm is in "perpetual growth mode."

Clients are looking for firms with broader geographical reach, and firms need to diversify to protect against economic downturns, he said. They also need scale to improve the bottom line.

That would appear to be the theme of the BakerHostetler combination with Woodcock Washburn. BakerHostetler executive partner Steven Kestner said the 800-lawyer firm anticipates its already substantial intellectual property group would be fueled by the addition of 68 lawyers from Woodcock Washburn.

The Philadelphia group will benefit from BakerHostetler's 300-lawyer litigation department, Kestner said.

The merger is subject to votes this month by partners at both firms. It would be effective Jan. 1.

Kester said the economics of the merger work well. BakerHostetler's relatively low cost structure matches up with rates charged by Woodcock Washburn's lawyers. Translation: Woodcock Washburn lawyers won't have to raise their rates just because they are joining a bigger firm.

Before the market crash of 2008, firms simply grew and waited for clients to walk in the door. That doesn't happen anymore.


cmondics@phillynews.com

215-854-5957 @cmondics

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