Why BigLaw Is Gutting Midsize Firms' Transaction Practices
Law360.com, May 7, 2024
By Aebra Coe
Law360 (May 7, 2024, 3:58 PM EDT) -- Midsize law firms have been getting pummeled lately as large law firms position themselves to take on transactional work in a warming mergers and acquisitions market, in some cases hiring away groups that make up 10% or more of the lawyers at their previous firms.
Rather than buying up the entirety of midsize law firms through acquisitions — those have been fewer and farther between this year — it seems large law firms are leaning on their ability to hire groups laterally as deal flow is poised to thaw.
And groups of transactional lawyers at midsize law firms appear happy to join BigLaw, considering the frequency at which these raids have happened in recent months.
Last week, Blank Rome LLP opened a Boston office with 25 corporate and finance lawyers from Burns & Levinson LLP, including 13 partners and several practice group leaders. The group departure amounts to around 20% of their former firm's U.S. attorney headcount, and puts a major dent in its corporate group.
The departing team included former leaders of Burns & Levinson's corporate practice group, tax practice, securities and capital markets group, and finance team.
In April and May, Crowell & Moring LLP brought on a combined four lawyers from Neal Gerber & Eisenberg LLP to open the firm's Chicago office. While not as large of a group, there were some key people among the additions. The two partners that joined the firm in April chaired Neal Gerber's corporate and securities group and cross-border and international practice. They were followed by two more longtime Neal Gerber partners.
One really splashy group hire in April was Baker McKenzie's addition of 17 merger, tax and private equity lawyers from Munger Tolles & Olson LLP, which amounted to hiring away around 8% of that firm's U.S. headcount and the vast majority of its firm's corporate practice. The additions include Brett Rodda, who has led the representation of clients in several multibillion-dollar transactions in recent years.
Ten lawyers have left Morrison Cohen LLP for Loeb & Loeb LLP in recent months, and while Loeb & Loeb may not be a massive law firm, it's about three times the size of Morrison Cohen. And one of the additions included Morrison Cohen founding partner and corporate practice chair Stephen I. Budow.
Going back to February, Dechert LLP hired away the co-chair of Schulte Roth & Zabel LLP's M&A and securities group. While not a group hire, it was still a practice group leader in M&A jumping from a midsize to a large law firm.
The moves are a reflection of the overall appetite in the market for M&A and private equity partners, alongside an increased openness in BigLaw firms to hire from quality midsize firms, according to recruiters I've spoken with.
Additionally, many transactional partners at midsize firms are interested in seeking out a bigger platform with more administrative support, high-quality associates, international offices and tertiary practices, all of which can allow them to better serve their clients.
Jenny Swan Meyer of Swan Legal Search said her data shows that there have been 344 corporate partner moves in 2024 year-to-date versus 259 during the same period in 2023, amounting to a 32% increase that puts the industry close to the numbers in the first part of 2021 and 2022 at 374 and 361.
"Things are picking back up," Swan Meyer told me.
Rose Corbett, a managing director at recruiting firm Macrae, told me that she is noticing the increase in activity too, particularly when it comes to private equity lawyers.
"Firms have an appetite in PE that is exceptionally strong," Corbett said. "PE is the number one demand that we have from our clients across the board."
Rates have historically stood in the way of many lateral moves between midsize and large law firms, but an increasing level of flexibility is allowing those moves to happen, Corbett said.
Gary Miles of Miles Partner Placement said that, rather than following the traditional formula of hiring primarily from other large law firms, BigLaw is looking for talent wherever it resides and then considering whether those people can be moved to the new platform and be successful there.
"It's indicative of firms being much more open-minded and creative about where to find talent to meet their strategic initiatives. It's a broadening of the mindset," Miles said.
And in terms of their ability to be successful on a larger platform, many corporate partners at midsize firms do believe they could be, according to Michelle Fivel of Hatch Henderson Fivel.
"Partners at mid-market firms move because there's a more qualified, deeper associate bench so they can get more support, which can help them market to their existing clients and help them attract clients that are bigger or more sophisticated," Fivel said.
Swan Meyer pointed to the international reach of many large law firms as an additional draw.
"These lateral partners can now leverage the firm's international reach and ability to handle crossborder deals that may have been limited at their previous, smaller firm," she said. "With the deeper bench of support and an international platform, the partners have an even greater opportunity to service existing clients and develop new business. It's an enticing value proposition."
The catch, as Corbett pointed out, is that they also will likely have to adjust their rates to align with the larger law firm, which could put some clients off. But apparently those making these moves — and the firms hiring them — believe it's worth it in the long run to focus more on clients willing to pay the BigLaw premium for the broader and bigger platform and to let others fall away.
It does seem that law firms are having an easier time, or at least are more apt, to add transactional partners via groups as opposed to through combinations this year. One reason for that could be that the lawyers in the examples above all come from 150-or-so lawyer law firms up to 300-lawyer firms, and a combination with a firm of that size can be challenging to complete.
In terms of combinations, BigLaw is primarily acquiring firms with fewer than 20 lawyers, and typically, you just don't see sizable transactions happening at law firms that small.
Most of the recruiters I spoke to also pointed out that even though there does appear to be a greater openness on the part of large firms to hire transactional partners from midsize firms, and we saw a spree of those additions in recent weeks, this is not an entirely new phenomenon. It's something that's been going on for decades, albeit generally at a slower pace.
Despite that, I think the pace at which we're seeing it happen is worth noting. I'll be watching to see if it was just a statistical blip or if there is more to come.
--Editing by Nicole Bleier
https://www.law360.com/pulse/mid-law/articles/1834517/why-biglaw-is-gutting-midsize-firms-transaction-practices