Why are firms merging and is it related to dealmakers changing firms?
There have been several highly notable law firm mergers in the last five years – Allen & Overy with Shearman & Sterling, Troutman Pepper and Locke Lord, Ballard Spahr and Lane Powell, Womble Bond Dickinson and Lewis Rocha, to name a few.
It will help to start with why firms merge. The short answer is that larger firms have outperformed smaller firms for as long as any of us can remember. Running a firm is an expensive proposition, with associate salaries on the rise, the increase of well-compensated non-equity tier of partners, and incremental investment in technology. It simply takes too long to scale with individual partner hires, or even teams. (And it’s notoriously hard to land teams). Mergers allow firms to expand their geographic footprint, and to diversify into more money-making practice areas. Finally, many big-name clients prefer working with larger, full-service firms where all of their needs can be met under one roof. Some mergers are of equals, others are called mergers but are acquisitions. In both cases, we’ve been seeing significant merger activity of late, and there are no signs that it will slow.
Even just in recent weeks, we have also seen major dealmakers switching firms – including those with career-long tenure at the firms they have just departed. Of note in terms of recent moves, Mike Ringler and Pete Jones moved their booming public M&A practice from Skadden to Sullivan & Cromwell, head of M&A Michael Diz left Debevoise (after helping to launch their San Francisco office) to do the same thing for Davis Polk, Jim Langston moved on from Cleary Gottleib to Paul Weiss, and Eric Schiele departed Kirkland for Paul Hastings.
Rainmaker moves seem to have picked up over the last 12 months. Partly this was based on the idea that the markets would be stable under a new presidential administration. Markets love certainty. Another reason, especially in the M&A realm, is that global M&A markets didn’t deliver the full resurgence that many predicted in 2024, and the idea was that it could fully come to fruition in 2025.
Major dealmakers have significant leverage, using favorable M&A conditions to secure compensation and leadership roles. According to Major, Lindsey & Africa’s 2024 Partner Compensation Survey, last year the average equity partner compensation was at an all-time high of $1.4 million dollars at AmLaw 200 firms. For reference, this is a 26% (!) increase over the same measure in MLA’s 2022 survey. When you think of how far above-average rainmakers are paid, you can begin to guess at how eye-popping their new earnings are. Corporate partners continue to be the best-compensated group, with average total compensation of $1.9 million (an increase of 29% since 2022). It has been widely reported that rainmakers at Latham have received compensation of around $20 million dollars.
What both mergers and bold-name hires show us is that firms are racing each other, more so than they have in the recent past. Firms that may be considered in a lower tier are boosting their profile by bringing in partners from AmLaw 10 operations or combining to join forces. In a world where 2020 looked like it might bring firms to their knees, there is a renewed sense of stability. Profits are soaring. Per the Wells Fargo Legal Specialty Group’s Nine-Month 2024 survey, revenue rose for all firms reporting by almost 13%, which is stark compared to the 4.6% rise that the group’s 2023 survey showed.
Firms are willing to both spend on rainmakers and to merge as they seek higher profits per partner, revenue figures, and status. Standing out, and above, in the most competitive legal landscape in the world, is requiring firms to be nimbler and more generous than ever before.
