April 20, 2007
Fallacies about Law Firm Mergers
While it isn't May yet, the May 2007 issue of IOMA’s Law Office Management & Administration is already out and it identified four misconceptions about the benefits of law firm mergers:
1. It turns out that bigger doesn’t translate to better or more profitable. The correlation between firm size and revenue per lawyer or profits per equity partner is less than 3 percent.
2. Corporate clients do not always prefer large law firms as indicated by a survey of in-house counsels. Less than 30 percent indicated a preference for firms with a national presence while the remainder indicated that what mattered was value.
3. With only a 1 percent share of US legal spending, being bigger hasn’t given the AmLaw 100 law firms a dominant position in the marketplace.
4. Economies of scale are not realized by mergers or size. As one general counsel put it, “I’ve never seen a law firm merger justified on the basis of reducing cost to the client.” As one DuPont lawyer recently pointed out, surveys consistently show that larger law firms spend more on overhead on a per-lawyer basis than small firms.According to the DuPont representative, costs go up following a merger and higher costs aren’t the only negative. “We have discovered that the larger the law firm becomes, the harder it is for the firm to serve us as well as it has in the past."
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