Law Firm Mergers Hit Record High, With a Big Month to Come

Merger mania continues in the legal sector with Friday’s announcement that Cleveland-based Baker & Hostetler is combining with intellectual-property boutique Woodcock Washburn of Philadelphia. The news brings the number of law firm merger announcements in the fourth quarter to 20, according to data compiled by law firm consultancy Altman Weil. The total so far for 2013 stands at 78. Get ready for those numbers to climb over the next four weeks because firms tend to announce such plans in December.

What’s in the most recent tie-up for 800-lawyer Baker & Hostetler? The firm’s intellectual property practice will grow by a little more than double, to 140 lawyers, should the partners of each firm vote to approve the deal. A vote is expected in early December, with the deal setto take effect on Jan. 1. “Woodock Washburn’s nationally known and highly regarded intellectual property practice strengthens our IP position, particularly for clients in the technology sector,” Baker & Hostetler executive partner Steven Kestner said in a statement.

Combining operations will bring the firm into three markets it currently lacks: Philadelphia, Seattle, and Atlanta. For firms looking to expand geographically, the conventional wisdom holds that the best and fastest way to do that is by merging with a firm in the targeted market.

For 68-lawyer Woodcock Washburn, its lawyers no doubt will have a larger pool of clients to draw on as part of a large, full-service firm. “Our clients will benefit from being able to tap into the various practice strengths within Baker & Hostetler,” said Joseph Lucci, a member of Woodcock’s policy committee.

It’s not a surprising move for the boutique, given the fate of other small IP shops over the last decade. IP work was traditionally handled only by boutiques until general-practice firms started adding that capability about 20 years ago—and more aggressively in the last 10 years. The competitive environment for smaller firms has become much more intense, and they’re competing against far deeper pockets.

With growth in IP work coming mostly from litigation (think: smartphone-patent fights) larger firms have the resources that boutiques lack to handle major disputes, as Lucci’s comment suggests. “The big firms have big, deep litigation practices, so they can marry those trial departments with an IP practice and basically offer a one-stop shop for big-ticket IP litigation,” says Altman Weil principal Ward Bower.

Baker & Hostetler’s pockets are plenty deep. The firm has struggled less than many other big firms through the recession, in large part because of its work liquidating Bernard L. Madoff Investment Securities. Partner Irving Picard has served as court-appointed trustee on the matter since 2009, an assignment that probably earned Baker & Hostetler hundreds of millions of dollars in fees. Picard has estimated that by 2014, the Madoff case will have generated fees of about $1 billion for lawyers and others advisers.

Those fees might, in part, boost the confidence of the firms’ leaders to talk merger. Bower says this year’s merger announcements—78 is a record high in the six years Altman Weil has tracked such activity—stem from growing confidence in a sustained, albeit tepid, recovery. Plans previously on the back burner, he says, are being dusted off and actively pursued. “Law firms are using this relatively slow economy to combine and gain market share through [these mergers], hoping they’ll be better positioned from a standpoint of strength,” Bower adds.

Time will tell how any of these combinations will work out—especially those that leave us scratching our heads.

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