Merging Relationships

Mergers moving law firm 'profession' toward 'business'

by Gil Stuenkel

St. Louis Business Journal — August 3, 2001

Law firms merge for a multitude of reasons, including economic factors, client service, personalities, and the tangible and intangible assets of the firms involved.  And they can be called off for any of the same reasons.

In some cases, a merger is the only option for a large law firm that wants to acquire or strengthen a specialty practice group, or even acquire only one attorney within that specialty, said Aaron Williams, president of Aaron Consulting Inc., a nationwide attorney recruiting and management consulting firm based in St. Louis.

The larger firm is not always the driving force behind mergers, he said.  "you have to ask who's approaching who, and why, and what they hope to accomplish with the deal. "

The due diligence and negotiations preceding a merger can take months or even years, and are complicated by issues such as compatibility of tangible assets (for example office leases, word processing systems, accounting systems, billing software).

For a successful merger, he said, a high degree of respect is necessary among all parties involved.  "The questions become, "Do we just like each other, or do we respect each other and can we be productive working together (in the environment of the merged firm)?'" he said.

"Human relationships can complicate deals.  When law firms merge, it's like a marriage, and it's taken personally."

However, even with all the issues involved, mergers and "divestitures" of practices and firms have become extremely common over the past 20 years, Williams said.  "We have clearly moved the law firm 'profession' into the law firm 'business.'"

Bob Tomasco, managing partner in the St. Louis office of Blackwell Sanders Peper Martin, said that for his firm, the opportunity to serve clients in other cities was a key factor in the 1998 merger of St. Louis-based Peper Martinand Kansas City-based Blackwell Sanders.

Tomasco said the merged firm, now with about 235 attorneys, has the capabilityto serve client needs on an international basis and obtained a "thriving" London office during the merger.

"In the long run, if the clients benefit, the firm will benefit also," Tomasco said.

He added that the merger has expanded the firm's recruiting horizons and ahs made it easier to recruit from nationally prominent law schools.

Tomasco, who was affiliated with Peper Martin before the merger, agreed with Williams that a merger is "like a marriage.  You have to be sure to pick the right partner.  In our case, the honeymoon is over, and we're still happily married."

Keith Hazelwood, partner in the St. Charles law firm of Hazelwood & Weber, has seen mergers from both sides, moving in 1987 from a small firm to a large firm (Thompson and Mitchell), which subsequently merged in 1996 with Coburn and Croft to form Thompson Coburn, at the time a 275-attorney firm with four locations.

Hazelwood left Thompson Coburn in 1998 to remain in St. Charles, but has only good things to say about his experience with the big firms.

"Many lawyers practice in both small firms and big firms to see what fits them best.  At a different moment in their life, one or the other may be better," he said.  "I think we'll continue to have good lawyers in small firms because they want to be there for the lifestyle it affords, or during different passages in their lives."

Hazelwood said he believes that the reasons for law firm mergers are changing, and although mergers have become more common in recent years , eventually "like other trends, some shortcomings emerge."

Within the accounting industry, the recent trend of consolidation (acquisition of accounting firms by non-CPA companies) may be slowing, said James Castellano, managing partner of Rubin, Brown, Gornstein & Co.

He said that in the past year, no major accounting firms were acquiredby large national consolidators, non-accounting firms such as American Express, H&R Block and Century Business Services, all of which previously acquired a significant number of accounting firms.

Castellano also said ther is a continuing interest in the possibility of law and accounting firms merging into a multidisciplinary practice.  "The concept is not a new idea, but figuring out how to deal with regulatory issues" likely will prevent accounting/law mergers in the near future, he said.

Gil Stuenkel is a St. Charles freelance writer.