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How law firm mergers can go wrong

Posted Apr 14, 2014 7:34 AM CDT
By Debra Cassens Weiss

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The indictments of three leaders of the merged law firm Dewey & LeBoeuf provide a worst-case example of how law firm mergers don’t always work out.

At Dewey, retirement debt, the economic downturn and high compensation for rainmakers dragged the firm down. The indictments claimed firm leaders “cooked the books” to keep the firm afloat. But there are other ways that mergers can create problems, the Wall Street Journal (sub. req.) reports.

The story identifies several negatives. A weaker firm can drag down its stronger partner unless high expenses and unproductive partners are quickly addressed. A merger of two firms with similar strengths can lead to power struggles. Integrating staff and lawyers can be difficult. And continued weaknesses in the economy can create additional hurdles.

At Edwards Wildman Palmer, created through a merger in 2011, revenues last year dropped more than 11 percent since its creation, the story says. Recently the firm laid off 10 lawyers and 42 staffers, saying the firm is repositioning itself to reflect the industries it serves and is trimming staffers due to advances in technology.

Legal consultant Peter Zeughauser told the Wall Street Journal that the success of big law-firm mergers can’t be assessed within a year or two. He said mergers are undertaken with a view to the long term, "10- to 15-year plays, maybe longer."

The article cites Sidley Austin and Wilmer Cutler Pickering Hale and Dorr as examples of “sizable and successful firms" created through mergers.

Altman Weil tracked 88 law firm mergers last year, though most were mergers of smaller firms. The benefits can be access to new markets or more lawyers in high-profile practice areas.

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