A guide to law firm mergers

The reasons that firms decide to merge are as varied as the firms themselves, but there are usually some key drivers – namely, the desire to expand, geographically or in terms of expertise, or to stay afloat. For the lawyers who find that the firm they joined is no longer the firm at which they work, there are normally a raft of opportunities and maybe especially so for trainees.

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Mergers can be an extremely effective way for law firms to expand and reduce costs. Therefore, you’re never too far away from a story about a law firm merger – either contemplated, being negotiated or completed. We spoke to Jessica Kolhorn, counsel in the corporate and securities group at Mayer Brown International LLP, for insights into the rising number of law firm mergers in 2024.

2024 – a strong year for mergers

The first quarter of 2024 was the "strongest opening period for deal making since 2022”, according to the London Stock Exchange Group. Despite there being fewer M&A deals, the combined value of transactions increased, coming to $797.6 billion, which is a 38% increase compared to last year. Law firm mergers rose by 25%, with 20 mergers completed in the first quarter and a subsequent nine more mergers in Q2, including the creation of multinational firm A&O Shearman. Lisa Smith of Fairfax Consulting notes that smaller firms are "getting more realistic about the challenges of competing at a small scale". She also states that merging allows firms to invest more in technology and AI. So, as merger activity increases, it’s important for aspiring lawyers to consider the reasons behind the mergers.

What are some of the factors that lead firms to merge?

There’s usually not one single reason that causes firms to merge – rather, it’ll be a unique set of conditions and aims that combine to draw them together. Nebulous? Perhaps! But here are some of the most common reasons why a merger might be considered:

• Increased geographical reach – a law firm wants to have a presence in more countries or regions, and the firm it intends to join with has offices in its desired locations.
• Increased sector presence – a law firm wants to diversify the practice areas it covers or the industry sectors it has expertise in.
• Client driven forces – a law firm is responding to requests from its clients to provide services in locations or practice areas that it doesn’t already cover.
• Financial pressures – a law firm needs to join forces with another to mitigate against a precarious financial position.
• Improved market position – a law firm wants to solidify its position and will strengthen its position by joining with another.

Some or all of the above factors have driven more firms to merge this year. But as mergers become more common, it raises the question: what makes a union successful?  Firstly, practical details and logistics are key to success. This includes, but isn’t limited to, office location, IT integration, salary integration and redundancies.

Jessica also outlines the importance of the two firms sharing a vision and culture: “A key focus for the management boards of each firm leading the merger will be selecting a firm which has the right balance of synergies, to ensure a successful integration is achievable, so as to make the merger beneficial for both parties.” For example, the firms need to ensure that they’re on the same page in terms of their respective approach to:

• non-billable time;
• diversity and inclusion;
• pro bono work; and
• the importance of communication between the partnership and other staff.

So, when a merger is proposed, firms must be aligned, both ideologically and practically. Jessica says that parties need a “clear strategic goal”, which should be “effectively communicated to the market, employees and clients alike”. If the two firms take very different approaches, it could be that the union is doomed.

What about when talks fail?

Merger failure isn’t unusual. Before Shearman & Sterling merged with Allen & Overy LLP, it had had failed talks with Hogan Lovells. After the pair abandoned talks, the firms released a statement explaining that they’d “mutually agreed that a combination at this time isn’t in the best interest of either firm”.

It’s often the case that failure to merge can sometimes simply be the result of the pre-merger investigation and due diligence, and a realisation that the firms aren’t actually a good match – you could call it the very definition of an amicable split. Jessica notes that, in particular, talks often fail due to “differences in employee cultures, including salaries and other benefits, flexible working arrangements and training styles”.

Other reasons might lead to relations becoming more acrimonious, including an inability to agree on key elements of the deal. For example, “a merger can result in a conflict of interests where one firm was historically acting for a client and the other firm acts for a client who’s conflicted to that party”, Jessica explains. Leadership can also be a point of contention. We can only imagine that there’s sometimes a non-negotiable problem of senior figures vying for position, or even so serious a personality clash that the deal can’t survive.

What are the specific benefits for clients?

Provided the merger has been implemented carefully, there are clear benefits for clients – in fact, the merger will often be driven by the needs of those very same clients who want their lawyers to be able to advise on the legal rights and obligations in other jurisdictions or cross-sector. To shore up that ability, and to hold onto their clients, law firms may have identified that the best option is to combine with another firm in those areas (be they geographic or practice).

While law firm mergers look to benefit all parties involved including clients, the gain isn’t always recognised. Factors that firms must take into account when in merger talks include culture, pricing, profitability and systems, as laid out in a Lexology article by CM Murray LLP. By failing to spend time on all elements, mergers can have a backwards impact on clients. If systems aren’t integrated effectively, for example, clients may feel dissatisfied and eventually look elsewhere for their legal services needs to be met.

Recently, the Solicitors Regulation Authority (SRA) released a warning notice, emphasising the importance of prioritising clients’ interests when carrying out mergers. The statement highlights the dangers of making multiple acquisitions in a relatively short period of time.

For example, earlier this year, the Metamorph Group acquired several high-street law firms in quick succession before being shut down by the SRA and some clients of the merged firms reported financial losses.

The SRA’s chief executive Paul Philip says that the regulatory body does “not seek to stand in the way of a healthy, competitive legal market”. However, Philip adds: “We have seen some firms making multiple acquisitions in a relatively short period of time which can create challenges in respect of business integration, organisational culture, and maintaining standards of service to increased client numbers.”

The feeling seems to be that provided the proposed changes and the new reality are communicated effectively to the client, much of the sense of upheaval and disruption can be minimised. As with so much in life, communication is key!

Read this Practice Area Profile to discover more about working as a mergers and acquisitions lawyer. 

What are the benefits for trainees?

There are many advantages for trainees; both those already at the merging firms and those who’ve been recruited but are yet to join. Some of those advantages include access to:

• more opportunities to travel or be seconded to new offices;
• different types of work and new clients;
• enhanced learning and development opportunities; and
• different seat options.

One thing that might worry potential trainees is what happens when a law firm announces it’s due to merge after you’ve been offered a training contract but before you start at the firm. Evidence suggests that most firms will try to honour pre-existing offers, but you may find yourself joining a firm that’s different in shape and size from the one that you signed up for. For example, before the merger, Allen & Overy used to offer 80 training contracts, compared to Shearman and Sterling’s 12. Now combined, the trainee intake at A&O Shearman is much larger than average.

Meanwhile, firms will be thinking about how to manage the transition in as smooth a way as possible, but there’s likely to be an understandable feeling of upheaval and disjointedness. As ever, though, the way you handle the unexpected is up to you – roll with the new set of circumstances and focus on the potential benefits, and you’re likely to feel better about the new proposition. If you resist the reality and put up obstacles, things are likely to go less well.

Examples of recent mergers

As mentioned previously, this year we saw a merger between Allen & Overy and  US firm Shearman & Sterling to form A&O Shearman, creating a combined revenue of around $3.5 billion, putting it among the top five law firms in the world. The merger, which officially closed on 1 May, aimed to expand to new markets as, while Allen and Overy was renowned as one of London’s magic circle firms, it wanted the opportunity to expand into the US market, which Sheaman & Sterling could provide.

Speaking more generally on law firm mergers, Jessica says the desire for international reach is one of the key reasons law firm mergers are rising. She explains that there have been more mergers this year “largely as a result of the increase in clients, in particular within the M&A and private equity space, focusing on international transactions (meaning UK firms with a UK-only presence will benefit from a merger with a firm with a global footprint), along with the increase in financial performance of larger US firms (meaning UK firms need to strengthen their financial position against these larger firms)”.

When the A&O Shearman merger was suggested to the partners at the respective firms, more than 99% saw the benefits and voted for the merger to go ahead. At the time of the consolidation, former senior partner Wim Dejonghe noted that the merger is a "historic moment for both firms and our profession". Dejonghe announced that Allen & Overy was “delighted that our partners have voted so resoundingly in favour of this merger, which is a transformational step for the legal industry”. Previously, both firms had had unsuccessful merger attempts, as Allen & Overy attempted to merge with O’Melveny in 2019 and Shearman & Sterling abandoned a merger with Hogan Lovells in 2023, as previously mentioned.

However, these aren’t the only firms to join forces recently. Earlier this year in February, Irwin Mitchell merged with Scottish firm Wright, Johnston & Mackenzie to provide a full-service offering across 20 offices in England, Scotland and Wales. At the time of the deal’s completion, managing partner for Irwin Mitchell in Scotland, Mark Higgins, explained: “We can accelerate our plans to grow our businesses and we’re looking forward to working together to maximise the opportunities both sides of the border for our clients.” Following the merger, Wright, Johnston & Mackenzie continue to operate under its brand in Scotland. Its managing partner explained why the merger was a good fit for the firm: “Both law firms have a similar, collaborative culture, with clients at the heart of everything we do.”

Meanwhile, Paul Hastings absorbed Paris boutique Antonin Lévy & Associés in June. The French firm specialises in white collar crime litigation, compliance, internal investigations, business and human rights, and environmental, social and governance litigation. Paul Hastings chair Frank Lopez explained that the move “demonstrates our continued investment in Paris and commitment to building our litigation practice to serve the complex needs of our blue-chip clients worldwide”.

So, as you can see from the above examples, the reasons that law firms merge vary. However, for the merger to be a success all parties involved must be on the same page. If a firm you’re applying to has recently merged or is in talks to, it’s vital that you spend some time researching the plans and the reasons behind the talks. Make sure you understand the relationship between the firms involved and how the merger will impact the newly formed firm’s clients, employees, reach and/or expertise.

Ellie Nicholl is a content and engagement coordinator at LawCareers.Net.