Once a month, corporate law firm leaders in Texas get a phone call or a visit from competitors headquartered outside the state – sometimes across the ocean – interested in a possible merger.
Partners at nearly all of the state’s large and successful law firms – Bracewell, Gardere, Haynes and Boone, Jackson Walker, Kelly Hart, Locke Lord, Porter Hedges, Thompson & Knight and Winstead – admit that they talk regularly with leaders from firms across the country about potential combinations.
Just last week, lawyers at Houston-based Andrews Kurth Kenyon and Virginia-based Hunton & Williams confirmed the two corporate firms have engaged in merger discussions.
To be sure, most of these discussions have gone nowhere, but legal industry insiders say the Texas business law market has quietly witnessed a significant increase in merger activity during the past three years.
Texas-based corporate law firms – spurred by stagnant demand for legal services and increased competition from national and regional law firms expanding into the state – are on pace in 2017 to record the most corporate law firm mergers in the state’s history.
In fact, many legal industry analysts now predict that the Texas corporate legal market is on the verge of a dramatic consolidation over the next three years.
“No doubt, there will be further consolidation in the legal market in Texas,” Vinson & Elkins Chairman Mark Kelly said in a recent interview. “We have maintained the position that we would listen to offers, but I have no interest in being a 2,000-lawyer firm.”
Other law firm leaders agree.
“I get calls almost weekly seeking a merger,” says Phil Appenzeller, chief executive officer at Munsch Hardt, which has 125 lawyers in Austin, Dallas and Houston. “These are mostly law firms interested in moving into Houston or Dallas, or they already have a small presence here and they want to grow bigger, faster.”
Since Jan. 2016, 22 Texas-based corporate law firms have either acquired or merged with competitors, according to Altman Weil, a national consulting firm that focuses on the legal industry. Another 30 national law practices with offices in Texas also combined with other firms during this period.
The past two years have witnessed several significant mergers involving Texas firms, including:
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- Dallas-based Munck Wilson Mandala acquired cross-town intellectual property boutique Howison & Arnott in July;
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- In June, Houston-based Norton Rose Fulbright completed its combination with New York-based Chadbourne & Parke;
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- Jackson Walker acquired Austin boutique Hays & Owens in April;
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- Dallas-based Condon Thorton Sladek merged with Anderson Tobin in February;
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- In January, London-based Holman Fenwick Willan acquired Legge Farrow Kimmett of Houston;
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- New York-based Kelley Drye & Warren moved into Texas by acquiring Houston-based Jackson Gilmour & Dobbs last December;
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- Andrews Kurth’s merger with New York-based Kenyon & Kenyon in August 2016;
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- Houston-based Coats Rose merged with Wright Ginsberg & Brusilow of Dallas in 2016;
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- Schouest Bamdas Soshea of Houston merged with Fitzhugh & Elliott in 2016; and
- Haynes and Boone expanded into Europe by acquiring London-based Curtis David Garrard last June.
Altman Weil reports that more than 450 U.S. law firms have merged since 2011, including 76 so far this year.
“There are strong Texas law firms who have employed me to help them evaluate possible merger partners,” Kent Zimmerman, a law firm consultant with Zeughauser Group, said in an interview in May. “The interest is there on both sides – firms wanting to grow and acquire other firms, and firms wanting to merge with larger firms.”
“I get calls all the time from non-Texas law firms asking me about possible combinations with Texas firms,” Zimmerman said.
Zimmerman and other legal industry insiders say that law firm mergers that are the most successful bring together lawyers and practices that complement each other by generating more revenues combined than they would separately.
“We still get calls from national law firms seeking an impactful merger,” Gardere Managing Partner Holly O’Neil said in an interview in May. “We are looking for expansion opportunities. If we do something, it needs to be one-plus-one equaling three.
“We do not want to grow just to grow,” she said.
Managing partners call these merger discussions “the dance.” It starts with an initial conversation gauging interest, followed by some wining and dining by the top dogs. If all goes well, influential partners at the two firms meet to discuss culture, clients and business strategies.
Then comes a critical stage: trading firm financial information, partner compensation, billing rates and potential client conflicts.
“Merging two law firms is not an easy process,” says Houston law firm consultant William Cobb. “I cannot tell you the number of times that we’ve gone through all the interviews and shared all the financial information, only to have the partners realize late in the process that the firms are not a cultural match.”
Cobb and others say there are four primary reasons that law firms merge: (1) it is the fastest way to grow revenues; (2) firms are trying to replace partners that departed for competitors; (3) some experience generational changes in leadership; and (4) a firm’s long-term office lease is soon to expire.
“Law firm mergers must be about growth – not just more revenues but also more profit,” says Gretta Rosanow, head of Citi Private Bank Law Firm Group’s Advisory Services. “We will continue to see consolidation, especially of smaller firms, and especially among firms that have complementary practice groups.”
The potential marriage between Andrews Kurth, which has about 400 lawyers, and Hunton & Williams, which has more than 600 lawyers, comes 14 months after AK merged with New York IP boutique Kenyon & Kenyon.
The three largest mergers involving Texas firms during the past five years are Fulbright & Jaworski’s 2012 partnership with London-based Norton Rose, Locke Lord’s merger with Boston-based Edwards Wildman in December 2014, and Norton Rose Fulbright’s acquisition of Chadbourne & Parke, which was completed in June.
“We continue to see a very competitive landscape in Dallas and Houston,” Richard Krumholz, who is head of litigation at Norton Rose Fulbright, said in a recent interview. “Law firms that do not understand that they need to grow are going to fall behind.”