Mergers: is there safety in numbers?

Mergers between law firms have soared 65% in the past year.

Some 385 mergers took place in 2013, up from 234 in 2012, according to accountants Wilkins Kennedy, as the legal sector consolidated to save on costs. Larger firms snapped up smaller players to make themselves more profitable and combat increased competition from other legal services, providers, the accountancy firm said.

For example, last year Norton Rose merged with US firm Fulbright & Jaworski in June; Wragge & Co merged with City firm Lawrence Graham in May; and Manches joined Penningtons in October, after Manches ran into difficulties. By comparison, there were just 146 mergers in the same 12-month period five years ago.

Tommy White, partner at Wilkins Kennedy, says: “These figures show that the rising trend for mergers shows no signs of slowing down, as financial pressures, increased competition, and to a perhaps lesser extent regulatory issues, are still having a major impact.

“M&A, corporate finance and property work for lawyers, particularly in the south of the country are all recovering but are generally still below the heady days of pre-2007. In addition the long term, secular decline in litigation work continues—despite a helping hand from recession linked disputes. While some firms need to find a white knight quickly in order to stave off potential financial collapse, others are turning to mergers to deliver that boost in profitability that a merger will achieve from cost savings. Economies of scale from a merger—especially where the merged firms can better utilise staffing levels—can be substantial.”

White says there has also been an increase in mergers aimed at gaining access to new sectors and services or to achieve wider exposure overseas. “The drive for consolidation appears to be more, not less, pressing as we leave recession behind,” he says.

Smaller firms, in particular, are under pressure from measures such as the ban on referral fees for personal injury cases, changes to legal aid and conditional fee arrangements as well as increased competition following the liberalisation of the legal services market, he adds.