SMALL AND MEDIUM LAW FIRMS LOOKING TO

EXPAND- AN ALTERNATIVE SOLUTION TO

MERGERS

HOW SMALL AND MEDIUM LAW FIRMS CAN GROW WITH THE HELP OF A SUPPORTING
LEGAL PROCESS OUTSOURCING UNIT.

Most law firms always wish to expand and encourage growth of

business. What mid-level law firms do is that they merge with other
similar firms in the hope of creating a larger and better collaborated
firm. However, that is not the only alternative available to them. In this
article, I will try to put forward my view of the alternative- how small
and medium law firms can grow with the help of a supporting
Legal Process Outsourcing Unit.

In this regard, I shall be writing this article in three major parts. The
first part of it will look into the law firm mergers over the last few
years and what the firms look for while merging with another similar or
a larger firm. The second part will try to analyze the alternative, the
possible greater growth of law firms if they outsource to LPO’s. The
analysis in both these cases will be theoretical, though some areas will
be spiced up with the use of statistics. In the third part, I will try to
analyze the two alternatives, with respect to different benchmarks and
try to ascertain which the better option for mid-level law firms is.

PART- I

ARE MERGERS THE ANSWER TO MID-LEVEL LAW FIRM

GROWTH?

An Analysis.

Before I delve into the analysis of this question, I need to make it clear
that in this piece, I will be looking into mergers for both kinds of law
firms over the last few years- large and medium. This will entail us to
understand the difference between a merger of two large law-firms
and two smaller ones and also the scope of such a merger. This will
only further our main topic “Small and medium law firms looking to
expand- An alternative solution to Mergers” available at
<http://megalpo.blogspot.com/2010/10/small-and-medium-law-firms-
looking-to.html>.
For large law firms large scale mergers has been the norm for quite
some time. This can be illustrated by the recent talks of mergers
between Orrick Herrington & Sutcliffe LLP and Akin Gump
Strauss Hauer & Feld LLP. Such a deal would result in an unified law
firm with about 1,740 attorneys around the world.i Apart from this,
Hogan and Hartson has already tied up with Lovells with projected
joint revenue of $1.9 billionii, and SNR has done the same with
Denton. Trans-Atlantic mergers seem to be the rage, but they are only
true and successful in the case of large law firms or mega-firms, who
even without the merger would have been quite capable of individual
survival. But is the same true in the case of smaller law firms, who look
to mergers as an actual opportunity to grow as they cannot grow
otherwise independently?

To answer this question, I will be looking into some recent mergers of

not-so-large law firms. My approach will be simple. I will mainly try to
look into the reasoning given by the merging firms in order to
substantiate their merger. From thereon, I shall try to derive the
fundamental justifications behind mergers in the case of small and
medium law firms. Finally, I shall look into whether the desired purpose
is achieved through a merger.

ANALYSIS:

MERGER 1: PHELPS DUNBAR and LYONS, PIPES AND COOK

“We are extremely pleased to join Phelps Dunbar, LLP, whose

regional presence from Texas to Florida allows the combined firm
to better serve our existing clients and provide a wide array of
comprehensive legal services to new clients within our expanded
geographical area. We will now have the resources and
manpower to grow our practice with one of the nation's most
respected law firms,” said Cooper Thurber, President, Lyons,
Pipes & Cook, PC.

Source: http://www.phelpsdunbar.com/firm-news/press-
release/article/two-of-the-southeasts-oldest-law-firms-combine-
1460.html
Phelps Dunbar’s capacity of lawyers has increased to 284, but in this
article, I am interested in noting the reasons behind LPC accepting the
merger proposal. As the words of its President clearly indicate, the
smaller law firm was looking to expand business to a greater
“geographical area”. Also, in his reasoning, he also clearly indicates
the lack of sufficient manpower as well as the lack of resources
as a fundamental reason for the merger. This merger follows another
New Orleans firm merger in 2008, that of Jones Walker and Miller,
Hamilton, Snider & Odom LLC.

MERGER 2: JONES WALKER and MILLER, HAMILTON, SNIDER &

ODOM LLC.
 Mr. Hines, Managing Partner of Jones Walker commented, “Miller
Hamilton has a strong and long history in the financial services
sector, representing financial institutions across the South. This
expansion for Jones Walker into additional states and the addition
of capabilities to our banking practice offers a wider range of
services and locations to our corporate and financial services client
base. One of Jones Walker's larger clients, International
Shipholding Corporation, recently relocated to Mobile, and we can
service them more efficiently with a local office.”

On the other hand, Mr. Snider, Managing Partner of Miller Hamilton

stated, “This combination made sense on many levels. We expand
the practices that we are able to offer to our clients, and the
culture between the two firms is a great fit. Together, our firm will
become one of the largest regional firms in the southern U.S.,
offering a full range of legal services. The combination of the two
firms fits well with both firms' strategic business objectives and
Source: http://www.joneswalker.com/news-room-779.html

From these comments of the respective Managing partners of the

firms, we can see that while the larger firm of Jones Walker is looking
to expand mainly into the banking sector as well as keeping its larger
clients intact, the smaller firm of Miller Hamilton is the one looking to
expand. They look hopeful of offering a full range of legal services. This
clearly indicates and substantiates one of the fundamental reasons for
a merger- that of lack of sufficient manpower. Expansion of
business is THE primary objective for all law firms and the only way
they can do so is if they have sufficient manpower. So what small and
medium law firms are looking to expand their business is increasing
their work-force. A merger with another small or medium law-firm
seems to make a lot of sense because this provides easy increase in
manpower. But what they fail to note is that the amount of business
flowing in is the same as before and does not increase substantially.

A simple example here can illustrate my point better.

Say there are two law firm- Law firm A comprising of three lawyers and
law firm B comprising of two lawyers. Say the capacity of work that can
be done by each lawyer is two projects a month. So while firm A does
six projects a month and generates the respective profit, firm B does
four projects in a month. Both of these firms have the fundamental
objective of expansion of business. Thus they decide to merge in the
hope of achieving or at least moving towards their objective.

However, does this solve the problem? No. It does not. The
merged firm now has five working lawyers with a capacity of ten
projects. The work capacity of the firms has not increased and thus the
business has also not increased. So how is this profitable? Mergers help
in growth and expansion to different regions. But does it truly serve
the purpose of expansion of business. Through a merger, a firm can
claim to have attained diversity, but can it claim to have expanded?
NO. Or maybe yes by a very small margin.

The basic factors given by law firms to support mergers and

acquisitions are the changing world scenario and globalization,
diversity in region and scope and reduction in administrative
expenses. An elaborate discussion follows:

JUSTIFICATION FOR LAW FIRM MERGERS

Law firm mergers can mainly be justified by the following reasons:

1. Changing world scenario and globalization: Sometimes a

law firm simply decides to merge so that its services can cater to
the needs of a new geographical market. A firm has to have a
global outlook in the modern world. And for that geographical
expansion is important. However, what they fail to notice is
that with a merger, there is no net increase in territory.
This is precisely the question that I want to ask here. Is there
any profitability out of such a merger for small law firms?
The cumulative business of the merged firms still remains
unchanged, or maybe increases very slightly. Only in the case of
mega-firms can the change in territory increase the business
capacity of the firm.
 2. Cutting down on administrative expenses: One of the
positives of a merger is that the administrative expenses of the
merged firm are reduced. For example, previously the individual
firms needed two accounts offices, while the new merged firm
needs only one to cater to its needs. Thus, somehow, the total
costs from departments not directly related to law may be
reduced.

3. Diversity in scope: Another reason put forward by most law-

firms while merging is diversity in scope. This, plainly put, is a
tool via which a larger law firm easily justifies its
acquisition/merger with a smaller law firm. They simply say that
the small firm specializes in a sphere and merging with it will
help growth of the firm in that arena. Though this may be
partially true, most often the smaller law firms are acquired to
get a head-start in the that region.

However, as my analysis shows, for small law firms, the reason behind
a merger is totally different. Business growth is the primary and
the greatest goal in their mind. My question thus still stands. Are
mergers the solution to small and medium law firms? I think not!
MERGER 3: SQUIRE, SANDERS AND DEMSEY LLP. And MIKI AND
YOSHIDA

The mergers of small or medium firms with larger law firms are not
restricted to the European and the US shores. The law firm of Squire,
Sanders and Dempsey LLP has merged recently with the Japanese
boutique firm Miki and Yoshida. In a similar mode of analysis, we shall
try to look at the reasons for the merger given by the former managing
partner of the smaller law firm.

“Squire Sanders’ global reach, which spans Asia, Europe, Latin

America and the United States, will benefit our clients in Japan,
particularly those merging with companies that have assets
outside Japan… A firm that operates globally can better meet
our clients’ needs and help handle the increasingly important
IP matters, both at a local and global level.”, said Miki, former
managing partner, Miki and Yoshida.
Source:
http://www.ssd.com/squire_sanders_expands_ip_capability_in_japan_thr
ough_combination_with_miki_and_yoshida_law_and_patent_office/

From this statement, we can easily understand that the reason for the
merger is growth and expansion on a worldwide level.

MERGER 4: BENESCH FRIEDLANDER & ARONOFF LLP. And DANN

PECAR & KLEIMAN PC.

The law firms of Benesch Friedlander Coplan & Aronoff LLP and Dann
Pecar Newman & Kleiman P C announced that they will merge their

“In looking at our growth plan this combination with Benesch made
perfect sense to us. In addition to similar clients, we have similar
values and a great cultural fit,” said Jeff Abrams, Managing Partner.
“Our firm has been strong in recognized practice areas in
Indianapolis. We see this as the right time to take it to the next level
and expand our opportunities.”

practices, effective March 1, 2010.

Source: http://www.beneschlaw.com/benesch-and-dann-pecar-
announce-merger-03-02-2010/

Dann Pecar also is excited about the combination as a way to expand

their current market and client base.

Apart from these, other similar mergers have been performed over the
last few years, some of them being New Jersey based law firm
McElroy, Deutsch, Mulvaney & Carpenter and Connecticut-based
Pepe & Hazard, and San Francisco's Carroll, Burdick &
McDonough with Smith & Partners, a European/Asian litigation
boutique. An intra- Canadian law firm merger also made headlines,
that of Newfoundland's Cox & Palmer with Halifax firm Goldberg
Thompson.
i
http://www.bizjournals.com/sanfrancisco/stories/2010/09/27/daily32.html
ii
http://www.barandbench.com/brief/2/266/hogan-hartson-may-merge-with-lovells-to-create-third-largest-law-firm-in-the-
world