Mergers the Way to the Top of Revenue Growth Charts

According to the recent AmLaw release of their top 100 for 2011, profits per partner (PPP) rose 3% overall to an average of $1.4 million. But as young associate hiring remains low compared to pre-recession levels, where is this growth coming from? Drew Combs’ recent April 26 article “Combo Craze” for The American Lawyer pinpoints law firm mergers as one of the primary reasons.

Says Combs, law firm mergers are “the surest and fastest way to zoom up our gross revenue chart. Sixty firm mergers were announced in 2011, according to the consulting firm Altman Weil, Inc.—a 54 percent increase from 2010 and the highest number since 2008.”

For instance, take the recent rise of Kilpatrick Townsend. In 2011, Atlanta-based Kilpatrick Stockton and San Francisco-based Townsend and Townsend and Crew were in the bottom rung of the AmLaw 200. But as Combs highlights, the combined firm of Kilpatrick Townsend & Stockton, whose merger became effective as of Jan. 1, 2011, vaults its 2011 AmLaw 100 ranking to 78 with $362 million in gross revenue.

Combs goes on to cite other mergers – Edwards Wildman Palmer (ranked 18th this year), Squire Sanders (ranked 35th) and SNR Denton (ranked 37th), all of which saw the combined units shoot up the ranks as compared to their statuses pre-merger. The same will likely be true of next year’s 2012 rankings based on the recent mergers of Bryan Cave with Holme Roberts & Owen, McKenna Long & Aldridge with Luce Forward Hamilton & Scripps, and Faegre & Benson with Baker & Daniels.

While mergers can “mean the end of an era for firms that have rich local identities and histories,” Combs says, “firm leaders contend that their mergers and combinations provide strategic advantages, not just heft.” Such moves can fortify strongholds in key markets, provide a much-needed national or international footprint, and expand firms’ capabilities and practices in smaller or traditionally-weaker areas.

At the same time, many factors play into whether or not mergers are ultimately successful. Accordingly, it is important to note that short-term gain in revenues and rankings do not guarantee long-term stability or success. Nonetheless, it remains a positive and significant indicator, hence why we are seeing such an uptick over the last 3 years as the economy recovers.

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