M&A in the Legal Sector: Does 1+1=2 or 3?
Expansion and growth objectives increasingly shape the strategic direction of law firms – flag planting and consolidation are two evident themes. Transformational M&A is often the strategic route; however, recent examples are ample evidence that the transformation is neither a smooth nor a casualty free process.
The rationale behind these moves are various and play to the interests of different stakeholders. Conventional wisdom suggests that strategic synergies, expanding service offerings and international expansion are some of the most significant strategic considerations. When things go well, clients benefit from the combined strengths of the merging firms.
The legal players involved can leverage this to develop their expertise and geographical footprint, spread fixed costs over more fee earners, and ultimately attract greater client mandates. Dentons is one firm that has earned a reputation for expanding through M&A. Following a round of mergers in 2015, Dentons saw global turnover rocket by 66 per cent to $2.12bn. This included a landmark combination with Chinese firm Dacheng, to create a 7,500-lawyer legal titan. However, things can just as easily go wrong.
Large-scale integrations are undoubtedly operationally complicated. Throw in uncertain transition periods, redundancies and different corporate cultures and you have a situation that would faze even the most skilled executive teams. It remains to be seen how the pending three-way merger between CMS, Olswang, and Nabarro next May will play out in the long term. In other cases, M&A is not simply a strategic proposition for growth, but a vital life line for survival. This is the position with King & Wood Mallesons. Once a global elite, formed of a Chinese and silver circle law merger, KWM has been crippled into crisis by debt and a failed recapitalisation plan. An M&A partner would have been a vital lifeline. Tragically, none has emerged.