COVID-19 Pushes Law Firm Mergers to a Record Low

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The COVID-19 pandemic has pushed law firm mergers to a record low in the second quarter as the sector struggles with economic upheaval from the coronavirus outbreak.

According to a new report from Altman Weil MergerLine, only seven law firm mergers and combinations were completed in the three month period ending June 2020, all involving acquisitions of small law firms with 20 or fewer lawyers. 

The last time merger numbers have been so low was in 2010 when the crippling effects of the Great Recession were still present. At the time Atman Weil reported only five mergers.

  

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“Uncertainty is the biggest stumbling block to deal-making right now,” said Eric Seeger, an Altman-Weil principal who predicts an equally slow third quarter.

“Until firm leaders have a better sense of the depth and duration of the current economic downturn, they are going to proceed with caution. We expect the third quarter will be very slow as well.”

In comparison, last year the merger tracker registered 115 law firm mergers which marked the highest number since 2007 when Atman Weil began keeping track. Once the virus hit, however, firms swiftly suspended acquisition and merger talks and slowed down pending deals, as the outbreak has devastated the economy and law firms are trimming staff and reducing compensations.

“All big deals have been put on hold until management bandwidth improves and leadership teams are able to travel to meet in person,” said Tom Clay, an Altman-Weil principal. “Plus, some firms that might otherwise be thinking about merger do not want to enter negotiations in a weakened position and are waiting for the market to turn positive.”

Altman Weil’s reports are in line with those of Fairfax Associates, a legal management consultancy, which also predicts the coronavirus pandemic will dramatically slow down the number of mergers that are completed in the second half of the year. 

“Most firms will ride out the uncertainty and begin 2021 fresh,” said Lisa Smith, a principal. “There is still a lot of interest.”

“Firms still are looking at growth as the right strategy,” and noted that negotiations involving smaller firms or smaller numbers of lawyers are easier to conclude

The two largest deals announced in the second quarter of 2020 were made by AmLaw 100 law firms. In its second European acquisition of 2020, Littler acquired 20-lawyer, Polish labor and employment firm Paruch Chrusciel Schiffter. Cozen O’Connor added nine-lawyer, Philadelphia start-up boutique Baer Crossey McDemus.

The five additional combinations announced in the quarter were all acquisitions of firms with five or fewer lawyers. Four of those were same-state combinations in Florida, Pennsylvania, Ohio, and Maryland; the fifth was a small Florida-Illinois merger.

“It isn’t as if they’ve removed it from their strategy. They’ve put it on hold,” Clay said.