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Law360 (June 8, 2020, 8:10 PM EDT) -- While U.S. law firm mergers and acquisitions have slowed to a trickle due to the coronavirus pandemic, experts say the floodgates could open on combinations once stay-at-home orders are lifted and the economy stabilizes, though it's possible 2020 will still mark a 10-year low for such deals.
Tie-ups have been nearly halted by factors such as uncertain law firm economics and the inability to meet in person to get a handle on the culture of a combination target, law firm merger consultants say.
According to consultancy Altman Weil, there was just one combination involving a U.S. law firm in March, two in April and three in May, for six total. For comparison, last year, the industry saw 19 combinations between March 1 and June 1.
"There really isn't much going on at all," Altman Weil principal Tom Clay said. "I can contact the target firms, pitch them, but ultimately they'll say, 'We want to sit down and talk face-to-face.' Nobody is doing that right now."
Clay and other law firm merger experts say those sluggish figures will very likely reverse course once firms get a handle on where they stand financially and can once again conduct in-person meetings.
But the timing for that surge is uncertain and, depending on how things play out, the industry may see a smaller number of law firm combinations in 2020 than it has in any year during the last decade.
According to Clay, law firms typically begin their budgeting processes at the end of the year and are less apt to launch merger talks. That means that if the economy and travel do not open up again before October, combinations are likely to remain slow until the beginning of 2021.
"Later into the year, more people will say, 'We can't do this right now.' But if tomorrow things start again, it would be interesting for firms because they'd start to get a number of inquiries instead of one or two here or there," Clay said.
On top of preventing in-person merger talks, the pandemic makes carrying out the integration of two firms a daunting prospect, said Jill Huse, co-founder of consulting firm Society 54.
"I've known of several pretty high-profile mergers that have either stalled or are having trouble with integration," Huse said. "Integration and collaboration is the key to a successful merger, and our current climate is making this challenging, not only for face-to-face meetings, but also for building trust and camaraderie, which is crucial for success."
She stressed that law firms want to demonstrate they are an attractive combination partner and part of that is showing strong financial results, which is going to be a big challenge for many this year.
Dan Safran, president of Unbiased Consulting LLC, said he believes the industry will see an "acceleration" of mergers once the pandemic lets up. The biggest reason, he said, is that many firms will be actively looking to grow larger in order to bring in more revenue after taking a hit due to the virus.
"Scaling up [in size] in order to provide more and more services and a broader set of services to clients is going to continue to be a focus area, especially as we see more competition with the big accounting firms," Safran said.
He added he foresees a reversal in the trend of corporate legal departments taking work in-house, with those departments instead creating leaner teams due to the pandemic's economic fallout.
"What we think will happen as a result of that is there will be more opportunity and demand for law firms. And I think they're going to continue to look for where they can make use of full-service, global firms. Especially large corporations will be looking for one-stop shopping," he said.
Consolidation will also be driven by the demise of firms that have not adapted to changes that have been accelerated by the pandemic, said John Remsen of law firm management consultancy The Remsen Group. Some of those include a shift to remote-working and the adoption of supplemental law practice technologies and other process-oriented solutions.
"Any merger conversations have been tabled temporarily. But, over the longer term, we are very likely to see more consolidations and combinations and mergers as the marketplace for legal services continues to restructure itself," Remsen said. "Driving that will be the firms that refuse to evolve and adapt."
--Editing by Aaron Pelc and Philip Shea.
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