law firm mergers and acquisitionsThese days, among managing partners of Am Law 200 firms, it’s rare that a week goes by without receiving a merger or acquisition offer. Law firms announced a record-breaking 79 mergers and acquisitions in the first three quarters of 2018, according to Altman Weil’s MergerLine, and as of December 6, big firms (with more than 250 lawyers) had launched another five acquisitions.

With the revenues and profits of firms in the bottom 200 sagging far below the top 50, underperformers are scrambling for growth strategies. It’s a volatile and fragmented market, and one in which we’ve seen some unlikely players take a hit. At some well-known firms, high-performing partners who collect top-tier rates are having their earnings dragged down by partners in sluggish markets.

That was the experience of an attorney we worked with in 2018, formerly a partner at a tri-state office of an Am Law 200 firm. He’s a litigation expert in the insurance industry, and between 2015 and 2018 he had grown his practice by more than 150 percentBased in a city where Am Law leaders such as Greenberg Traurig, Proskauer Rose and Reed Smith host offices, he could also command top-of-the-market fees.

Among the firm’s other offices meanwhile—in regions including the midwest and southeast—revenue growth and rate increases were comparatively modest. At the same time, office-to-office, the differential in fees had expanded. As a result, he watched his share in the firm’s profits get diluted. He feared that the firm’s compensation formula would continue to put him at a disadvantage and depress his earnings potential over the next ten-to-fifteen years. In addition, he concluded that his insurance clients weren’t likely to utilize any of the other legal services available across a national full-service firm of almost 1,000 attorneys.

As a result, the partner decided to consider a lateral move, and he was surprised to learn that he could earn much more money at a regional mid-sized firm of about 150 attorneys. Earlier this year we helped him lateral in as an equity partner. Unlike his Am Law mega firm with big-brand marquee, his new firm keeps a lid on overhead by relying less on offices in lower-profit markets. His clients are equally well-served, and he’s gained a rosier outlook on his future among a new group of colleagues who value both his contributions and expertise. He’s also finding it simpler and more rewarding to collaborate and engage with a management team that’s across the hall rather than across the country.

While some legal industry pundits contend the merger mania we’ve seen in Big Law over the past several years is fueled by myths, others predict consolidation will extend into 2019 and beyond. Some have gone so far as to predict that it’s impossible for Am Law 200 firms to survive unless they buckle up and brace themselves for serial mergers and acquisitions.

In the face of such sweeping forecasts, it’s worth considering this partner’s story. Bigger isn’t necessarily better, or smarter. And compensation varies wildly among differing markets. That’s a factor management would do well to consider when moving forward with combinations like those announced earlier this year by St. Louis–based Bryan Cave with London’s Berwin Leighton Paisner and Milwaukee’s Foley & Lardner with Dallas-based Gardere Wynne Sewell. Salaried-lawyers in these firms’ offices in Minnesota, Wisconsin and Texas will of course earn less than those in more competitive and lucrative states. Partner compensation should mirror the same metrics.