If you read only one article this quarter about mergers, this should
be it.  Not only is the author the former managing partner
of Andersen Legal (until it imploded), before that he was managing
partner of Clifford Chance.  Sure, he comes from a UK-centric
perspective, but economic laws know no borders, and the once-removed
context helps abstract from micro-reactions one might otherwise
have along the lines of, "He thinks such-and-such a firm ought to
merge, but I know them  better than that."

A theme you may have picked up on—if you haven’t picked
up on it, I need to work harder here—is that I believe that,
for richer or poorer, merger activity is on the increase.  The
jury is still out, at least in my mind, on the "richer or poorer"
angle, but the trend is clear.   Let’s take a quick tour
of the obstacles to, and then the incentives for, mergers.

Obstacles:

• In law-firm land, there are no economies of scale.  Altman-Weil
  certainly seems to believe this:

• Client conflicts and client demand:  These are two sides
  of the same coin.  Conflicts are obviously believed to militate
  against large scale, although I’ve argued elsewhere that the
  common wisdom about conflicts is deeply confused, indeed incoherent.  Client
  demand, on the other hand, is a genuine issue:  To the extent
  that F1000 GC’s hire individual lawyers with whom they have relationships,
  the size and scope of the firm behind that individual is not
  a compelling driver.
• Partnership agreements:  Essentially all partnership agreements
  have super-majority requirements for approving such hugely material
  changes as a merger; depending on the super-ness of the majority
  required, a relative handful of status quo‘ers could
  block a merger.
• Short-term earnings dilution: The immediate post-merger period
  (for at least a couple of years, depending primarily on lease
  obligations) will be expensive as redundancies in office space
  need to be ironed out and technology needs to be integrated.  Since
  firms will almost surely expense these costs as incurred (as
  they should!), profits-per-partner may take a short-term hit.
• Profitability disparities:  As hard as it is to achieve
  equilibrium in a partnership across offices and across differential
  partner performance, the difficulty is squared when another firm
  with disparate earnings patterns needs to be folded in.
• Cultural issues:  As much alike as firms may appear to
  the unaided eye, I guarantee that every one believes its culture
  is "unique" and valuable and therefore a proper subject for historic
  preservation.   And
  post-merger, whatever else the culture may be, it will be different.

Why, then, would any firms ever merge?

• To paraphrase Dr. Johnson, the imminence of one’s demise concentrates
  the mind wonderfully.  (The verbatim quote is: “Depend
  upon it, sir, when a man knows he is to be hanged in a fortnight,
  it concentrates his mind wonderfully.”)  In other words,
  if market conditions are becoming such that your firm’s survival
  in its current form is untenable in the medium to long run, drastic
  measures may be adopted.
• Most at risk are medium-sized firms without a clearly distinctive
  service offering:  These are firms that my wife, the marketing
  executive, would say lack a "unique selling proposition"—a
  benefit to their clients that is (a) distinctive; (b) credible;
  and (c) ownable.
• Finally, there is the importance of the market for lateral’s,
  both individuals and practice groups.  Firms perceived as
  lacking a critical mass will not be attractive to laterals and,
  adding insult to injury, desirable partners will be all the more
  tempted themselves to leave.

Adam Smith would have been among the first to observe that no
firm has a pre-ordained right to survive.  Indeed, according
to our data from the Law Firm Research Project, no fewer than 54
firms out of the AmLaw 200 in 1999 are no longer in the AmLaw 200
as of 2004 in the same form—a 27% change in just
five years.  What
happened to them?  Basically, they were acquired, they merged
into a different form, they dissolved, or they simply dropped off
the AmLaw 200.   This can happen to you.