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Why law firms merge and why you should care

Why law firms merge and why you should care

Juliet

09/09/2019

It can seem as though law firms change their names faster than you can say “Bryan Cave Leighton Paisner”. Often, this is because two firms have merged and given themselves the legal equivalent of a ship name or a larger firm has bought a smaller one.

For future trainees, it’s clear why mergers and acquisitions are important. However, it would certainly be disconcerting to find that the small firm you chose to apply to had been absorbed into a much larger one by the time you arrive.

But why should any of this matter to those who have yet to secure a training contract?

The answer is everyone’s favourite catchphrase: commercial awareness. Being able to talk about why law firms choose to merge is a great way to demonstrate your understanding of the pressures faced by merging parties and how the legal industry is changing.

This post explores two reasons why law firms might choose to join forces.

First, law firms often merge in order to expand into or strengthen their position in new markets. For example, so far in 2019, UK law firm DWF has merged with the smaller Melbourne-based firm Korosidis Lawyers in order to expand its Australian office, while Fieldfisher’s merger with Irish firm Mcdowell Purcell has allowed it to open its first office in Dublin. Firms often merge because, to be successful, they must appeal to major clients. As these clients are often multinationals, the issues they seek legal advice about may cover multiple jurisdictions. However, most lawyers are qualified to practise in one jurisdiction only. Therefore, to best serve major clients, law firms must be able to call on lawyers from several countries. This is made easier by the fact that, unlike most industries in the services sector, the legal industry provides services that can easily be sent across borders (eg, someone in the United Kingdom can’t receive a haircut from France without a lot of unnecessary expense, but they can easily videocall a lawyer in or email documents to a firm based in France).

Mergers also enable law firms to benefit from so-called ‘economies of scale’. For example, suppose that a firm is planning to spend a large amount of money developing a piece of legal tech software for its employees to use. The development cost would be similar for all firms, regardless of their size. However, for larger firms, this cost would be less as a proportion of their revenue, so the risk associated with such an investment would be reduced. Indeed, Bryan Cave and Berwin Leighton Paisner cited investment in new technologies as one of the motivations for their high-profile 2018 merger.

While these are by no means the only reasons why law firms choose to merge, hopefully this post will encourage you to consider the reasons why mergers happen the next time you discover that the firm you’re googling has changed its name.