Lateral Moves and Mergers Will Continue to Rise in 2012, Experts Say

As we head into 2012, all indications are it will be another strong year for law firm mergers and lateral moves. On the whole, the industry still finds itself in an interesting place as the economy recovers—caught between careful spending and expected growth. Now almost five years out from the recession, firm leaders are eager to break out yet still hesitant to invest in young associates with little or no experience. And as demand for legal services rebounds, clients and consumers are looking for quality service without having to pay for (or wait on) the training of new associates. Thus, firms all over are being forced to take proactive steps to expand and stay ahead of the curve.

On the one hand, lateral hiring of candidates with established practices, experience and strong books of business has become the new model for growth and efficiency. Not only is this helpful for firms looking to rejuvenate lagging practice areas, but it also allows for quick and successful expansion into new regions, markets and profit streams. According to a September survey released by Altman Weil, 91.6% of law firms indicated they were making efforts to expand laterally in 2011, and industry experts expect the trend to continue in 2012. A January 3 JD Journal article cites Thomas Clay, an author of the Altman findings, who notes “the increase in lateral hiring is due to the need for lawyers with plenty of business,” and “not the need to fill (young associate) jobs that were lost during the recession.”

Therein lies opportunity for experienced attorneys and dilemma for young law grads. Yet as the hiring landscape continues to adapt, the outlook remains bright. Overall the industry has fared better than most in terms of jobless claims and profit margins, and the fact that firms are now eagerly looking to hire (albeit laterally) is an encouraging sign long-term.

At the same time, finding the right candidates with the requisite experience and skills (in corporate or elsewhere) is not easy. In the journal’s interview with recruiter Larry Mullman of New York’s Major Lindsey & Africa LLC, Mullman notes firms may not be able to fill certain practice areas because fewer and fewer attorneys have been able to  acquire the kind of transactional business experience firms want. He goes on to say this is most often true with Corporate/Mergers & Acquisitions, but particularly so “in these uncertain times”, as “there are not many qualified partner candidates with the kind of business experience that makes sense. Transactional work, whether in corporate or real estate, is soft.”

The article goes on to note this is due in large part to enduring volatility on Wall Street. As noted by DLA Piper’s managing partner Terry O’Malley, “When the upside for GDP predictions is 2.5% and the stock market can move 2 or more % in a day, that creates turbulence in capital markets which makes it difficult for transactional practice.” Even so, DLA Piper added 110 lawyers in the U.S. in 2011 alone, and is still looking to expand.

The current state of the economy is such that lateral movements are particularly attractive and logical for both firms and candidates looking to make a move. Yet the key lies in matching one with the other, and in finding a place for the many young lawyers seeking employment.

However, increased lateral movement also means a shifting and often uneven balance of power. Many firms are losing their top legal talent, and in some cases, entire practice areas. Thus firm leaders are being forced to make quick and hard decisions in order to ensure their own survival, let alone future growth.

According to Jennifer Smith’s January 20 Wall Street Journal article Stark Choices for Lawyers–Firms Must Merge or Die, “At least 60 mergers occurred in the U.S. and abroad last year, the highest level since 2008 and a 54% jump from 2010”–a trend industry experts expect will continue to rise in 2012. Smith notes this is due in large measure to the fact that following the recession, increased billing rates is no longer a viable option for growth, as clients gained the upper hand during the downturn of 2008. Thus smaller firms are joining forces, and larger firms are quickly and easily expanding into new practice areas with “ready-made regional offices” in order to better serve client needs. Moreover, size and resources are not only attractive for firms looking to bring in new business and retain top talent, but also for laterals looking to make a move.

All this to say, further consolidation and increased lateral movement is expected for the foreseeable future. As lateral hiring continues to rise and the balance of power continues to shift, more and more firms will look to merge to secure future survival and growth.

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