Law firm merger mania in Israel but why now?
In a market where there are more lawyers per capita than anywhere else on Earth, it is not surprising there has been a spate of law firm mergers in Israel, but none more so than in the last couple of years. Why and why now?
Just this week, the announced merger between Goldfarb Seligman and Gross (to be called Goldfarb Gross Seligman) catapulted the combined firm to the coveted number 1 spot – in terms of size – with more than 520 lawyers, leapfrogging Meitar (appx. 470 lawyers) Herzog (appx. 450 lawyers) and Arnon, Tadmor-Levy (itself a recently merged firm with approx. 420 lawyers), three of the industry’s most recognized shining lights. As we were about to publish, another merger Naschitz Brandes Amir announced it was uniting with Shenhav Konforti Rotem & Co., giving the merged firm appx. 240 lawyers, coming in at number 9.
The merger between Goldfarb Seligman and Gross was negotiated over several months. The Goldfarb Seligman team was led by Tal Atzmon, Levy Amitay and Amir Tzafrir and the Gross team was led by Esther Koren, Aya Yoffe and Dr. Ayal Shenhav.
For the new Goldfarb Gross Seligman firm, the response has been “extremely positive,” according to the partners who led the unprecedented transaction “Our merger was just announced, overall reception in the market has been extremely positive and also internally the teams in both firms are excited.” The merged firm practice areas will include four central pillars with over 100 lawyers in each pillar. These pillars are International Transactions and High-tech, Israeli Corporate, Mergers & Acquisitions and Capital markets, Real Estate and Litigation. The merged firm will also have substantial practices in related areas of law including Taxation, Banking and Finance, Labor Law, Administrative Law (including local authorities and tenders), Intellectual Property (IP), Energy and Infrastructure, Antitrust and Environmental Law (including ESG).
Dr. Ayal Shenhav, Ashok Chandrasekhar and Rick Mann who will Co-Head the International, Corporate and Hi-Tech Practice at the new firm explain why they are thrilled about the merger between the two firms “Goldfarb Gross Seligman will be a true powerhouse for all cross border transactional work outbound from Israel and inbound into Israel. The combined firm includes a group of over 100 attorneys (of which over 40 are partners). This group has decades of experience including many partners who practiced in leading global law firms before moving or coming back to Israel. The firm represents a large number of startups, publicly traded companies, investment funds and international investors playing in each area of international practice.“
Nishlis notes that the Israeli legal market has seen many mergers over many years. The merger phenomenon is not new. Notable mergers in the past include Goldfarb with Seligman, Meitar with Leshem, Meitar with Kantor, Gross Hodak Greenberg with Kleinhendler Halevy and more. In recent years we see larger mergers as Israeli law firms have grown. In the past most mergers were between large firms (over 200 lawyers) and small / medium size firms (20 –80 lawyers). Now we see mega mergers.
In March 2022, another mega merger. Yigal Arnon and Tadmor Levy merged, with a synergy of the two firms creating a strong force on the Israeli legal scene. In announcing the merger, the merged firm’s management said: “This is Israel’s largest ever law firm merger.”
Until now.
The trend of mergers between law firms has in recent years led to the disappearance of medium-sized firms, with these changes stemming from the understanding that business continuity requires change and joining firms together provides the “One Stop Shop” and a variety of services for clients and will be beneficial to attract high-quality personnel and for large clients.
Just last month, in December 2022, Agmon & Co. Rosenberg Hachohen & Co. announced its merger with Tulchinsky Marciano Cohen Levitski & Co, with approximately 180 lawyers, with offices in Tel Aviv, Jerusalem, Beer Sheva and Sydney, Australia. This merger boosted the firm’s presence in the technology & life sciences sectors, expanding the firm’s commercial offering in the VC and high-tech sectors, among many others.
In recent years, Hamburger Evron merged with Erdinast Ben Nathan, Toledano & Co.; S. Friedman & Co. merged with Efraim Abramson, the Fisher law firm added the Zeev Hollander firm, and the Eitan Mehulal firm broke up and its lawyers split between Fischer, Gornitzky, Barnea Jaffe Lande and Naschitz Brands Amir.
Any merger will be the result of mix of reasons, discussed and debated (often in secret) by a law firms’ partnerships. We don’t pretend to have access to the most secret concerns of law firms’ top brass, but in our view, there are key drivers for why law firm mergers happen: going global, going national, entering new markets, practice expansion and economics of scale.
Among the reasons for mergers, there are:
- Increased geographical reach – many firms may want to expand their combined reach into regions and jurisdictions where their clients operate.
- Increased sector presence – a firm wants to diversify the practice areas it already covers and combine the synergies of the two firms Each firm wants to be a true one stop shop. This means having a Tier 1 practice in all key practice areas including Israeli Corporate and M&A, International Corporate and M&A, Hi-Tech, Real Estate, Litigation, Tax, Labor Law, IP, Environmental Law and ESG, Antitrust and more. Many firms have practices in all of the above areas but not Tier 1 in all areas.
- Improved market position – a firm wants to solidify its position and it will strengthen its position by joining with another, to increase its potential when bidding for the most sophisticated work. In addition, diversification in changing markets is key: A larger firm has a more diverse practice, so it is less dependent for example on strong hi-tech, strong capital markets, changes in real estate etc.
- Attracting Talent: The legal market is working hard to attract and maintain talents. Many young attorneys prefer to move to hi-tech companies, others prefer to work as in house counsel, each firm wants to hire top students and retain them for many years. Mega firms have a better chance of attracting and retaining top talent. These mergers, while they come with many challenges, present a raft of opportunities for young attorneys – such as access to different types of work and new clients; enhanced learning and development opportunities.
- Another key driver is economics of scale. A larger firm can provide a large conference center, strong marketing, strong finance team, strong HR teams and more general services for the firm wide platform.While there can be many benefits to lawyers and clients, a 2016 blog from LexisNexis discussed the importance of managing the process carefully. It says: “Some firms focus too heavily on operational issues – eg, billing and IT systems – and fail to spend enough time in advance on “client strategy (eg, account management, conflicts management, practice development and industry focus) and a firm’s culture and people (eg, agreeing common working practices, keeping and developing its joint talent)”.
When looking forward a senior partner from one of the leading firms adds: “I think more mergers will follow with a handful of firms eventually emerging which will be much larger than others. I think clients will be seeking to use the mega firms for transactional work and regulatory work. Smaller firms will continue to thrive in niche areas such as tax, litigation, family law and more. I also think mega firms will seek new growth engines including advisory services on non-legal matters leveraging their brand, resources and connection with key clients.”
“The Israeli legal market is changing rapidly,” adds Idan Nishlis, CEO of Nishlis Legal Marketing: ”I can imagine scenarios that have never been relevant till now, such as: an international law firm merging with an Israeli firm (such as Kennedys and Zelichov last year) and a triple merger.”
Nishlis adds: “Mergers among law firms is obviously not a new trend, but it did pick up in 2022, in the wake of the global challenges and current legal trends. Between 2019-2021, there are approximately 40 mergers (including departments leaving a firm to join another), in Israel. In 2022 we might have seen fewer mergers, but nonetheless, much bigger ones – including law two top-30 law firms that dissolved. It is interesting to see that in 2019 and 2020 there were 180 law firm mergers in the US (see graph below) and 250 law firm mergers in the UK (see graph below). With the US and UK legal markets much bigger than the Israeli market, we can see how dynamic the Israel legal market is, and at the same time attune with global legal market trends.”
These are interesting times.
