The legal industry is currently amid a merger mania as Biglaw firms look to join forces with competitors and boutiques, driven partly by concerns about a potential recession. However, not all firms have equal success in finding a suitable merger partner. Stroock & Stroock & Lavan, a New York-based firm, is facing some challenges in its search for a merger partner, including its pension program for retired partners and its accrual accounting system. The firm has been in discussions with several Biglaw firms, including McGuireWoods, Steptoe & Johnson, and Squire Patton Boggs, but has yet to find a successful match.
While most law firms use cash basis accounting, Stroock uses an accrual system, which considers revenue from work in progress and accounts receivable before clients have paid. Additionally, Stroock’s fiscal year ends in September rather than December, which is standard for most firms. The firm also has a pension obligation to its retirees that is tied to its revenue, which was once about $40 million annually. Stroock has contacted its retirees to ask for a reduction in benefits during its merger talks.
In a statement, Stroock acknowledged that “operational systems” and pension obligations may be points to address in “sizeable law firm mergers” but declined to comment on specifics of any merger talks. Brad Hildebrandt, a veteran consultant of law firm mergers, noted that most firms are not excited about adopting an accrual-based system, as it creates new income and tax issues. However, these issues can be solved with a good understanding of the direction of the firm being acquired.
Ultimately, what could kill a merger deal is a “lack of flexibility,” according to Hildebrandt. The question is how flexible Stroock and its merger partners will be in finding a solution. Stroock remains hopeful and is continuing to search for the right merger partner.
The legal industry’s current merger mania reflects the challenges facing law firms, particularly in the face of potential economic uncertainty. While many firms are finding success in finding merger partners, others, like Stroock, face significant hurdles. It remains to be seen whether Stroock will eventually be able to find the right match, but for now, the firm remains optimistic in its search for a merger partner.
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This Biglaw Firm Has The Urge To Merge, But Can’t Find A Willing Partner