© 2018 The Texas Lawbook.
By Mark Curriden
(March 8) – Texas-based business law firms are facing extraordinary competitive pressures from out-of-state corporate legal operations and many say they will need to merge with larger law firms in order to survive.
Nine of 10 leaders at law firms headquartered in Texas predict that competition from national legal practices is only going to increase, which they say could cause them to lose clients and talent, according to a new survey of 60 Texas law firm leaders by Zeughauser Group, a national legal consulting firm.
The Zeughauser Group survey found that 82 percent of law firms headquartered in Texas have been approached by national competitors about either merging or being acquired, and one-third of the Texas firms say they will give such offers serious consideration.
The new study comes on the heels of a handful of large Texas corporate law firms merging with larger, national practices.
Houston-based Andrews Kurth Kenyon announced last month that it is combining with Virginia-based Hunton & Williams. Dallas-based Gardere is expected to announce soon that it is merging with Foley & Lardner of Milwaukee and Strasburger & Price is in merger discussions with the Detroit law firm Clark Hill.
In addition, The Texas Lawbook has learned that national law firms are in talks with more than a half-dozen smaller litigation and tax boutique firms about acquiring the Texas practices as a way of planting a flag in Dallas or Houston.
“Law is a follow the money industry, and there is a ton of money following into Texas,” says Kent Zimmerman, a legal industry consultant and principal at Zeughauser. “Law firms all over the country want to be in Texas and to grow business in Texas.”
Zimmerman says that there are more law firm mergers in the works than are known publicly.
“Some Texas law firms are looking at mergers for strategic reasons – to enhance profitability or strengthen their position in Texas by broadening or deepening the services they provide to clients,” Zimmerman says. “Other firms need to merge out of necessity or for survival.”
The Zeughauser survey found:
- Eighty-four percent of law firm leaders in Texas are optimistic about their law firms’ future;
- Eighty-one percent expect their firm’s revenues will increase in 2018, and 41 percent believe revenues will grow by five percent or more;
- Firm leaders believe increased productivity and growth in demand for legal services in Texas are the top two reasons revenues will be bigger in 2018, although 40 percent say a jump in hourly rates will also be a major factor; and
- Two-thirds of Texas law firm leaders predict competition from national competitors will “somewhat grow” in 2018, while 24 percent believe out-of-state rivals will “significantly grow” and 11 percent contend the threat from national challengers will actually decline.
The Zeughauser study found that the number one location where Texas-based law firms want to expand during the next three to five years is Houston. Dallas and Austin are close behind. Chicago, New York and Washington, D.C. are the top three non-Texas locations for growth.
Law firm leaders, according to the survey, stated that the two biggest challenges facing their law firms during the next few years are transitioning leadership and client relationships to the next generation of attorneys.
“High-performing partners in their 40s, who are the next generation of firm leaders, are pushing their law firms to consider mergers,” Zimmerman says. “These Texas firms either need to make a move or risk losing these young talented lawyers to other law firms.”
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