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May 15, 2023

With law firm mergers up nationally, could Carmody deal signal more consolidation in CT?

PHOTO | CONTRIBUTED (From left) DDN Partners Brock T. Dubin, Michael G. Durham and Patrick M. Noonan with Carmody Managing Partner Rick Street.
1Q U.S. law firm merger activity
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Following the recent merger of two Connecticut law firms, experts wonder whether the state’s legal industry is headed toward more consolidation in 2023.

New Haven-based Carmody Torrance Sandak & Hennessey LLP and Guilford-based Donahue Durhan & Noonan P.C. (DDN) said in April their respective firms were merging. It’s the first announced law firm merger in Connecticut this year, but there were 16 completed deals nationally in the first quarter of 2023, up from 14 a year earlier, according to consulting firm Fairfax Associates.

There were 46 completed mergers nationally in 2022, and 2023 is on pace to surpass that, though deal activity still remains below levels seen about five years ago.

Lisa Smith

“Overall, we’re seeing a lot of interest in growth right now in law firms,” said Fairfax Associates Principal Lisa Smith. “2020 and 2021 were slower in terms of law firm mergers, mostly because of the pandemic. 2022 picked up and now four months into 2023 we’ve seen an acceleration of the number of deals and the amount of interest.”

The Carmody deal

As of May 2, Carmody Torrance Sandak & Hennessey LLP and DDN are one firm working under the Carmody umbrella. The deal grew the combined firm to 83 lawyers and 70 staff members based out of six offices statewide, including DDN’s Guilford headquarters.

Carmody Torrance Sandak & Hennessey LLP Managing Partner Rick Street said the two law firms started merger discussions several years ago while COVID-19 was rampant, and then picked up talks in 2022 as things began to return to normal.

“These things take time, but we were able to pull this together pretty fast,” Street said.

The two firms had worked on several cases throughout the years, so familiarity was an important factor in the merger. Donahue, Durham & Noonan Partner Pat Noonan said his firm focuses on civil litigation such as medical malpractice, employment law, health care and education, but didn’t have expertise in other areas. Combining with Carmody, which offers legal services in pretty much all practices and industries, was a natural step, Noonan said.

“We realized over the years that we were really lacking in every other part of law,” Noonan said. “I personally have had cases with 10 of the Carmody lawyers over the years and really enjoyed the collaboration — sometimes they’d refer things to me, sometimes we were co-defendants — so when we started to think about who the right firm was for us, Carmody was absolutely our number one and frankly the only one we considered.”

Matching complementary services is one of the main reasons law firms merge, according to UConn School of Law professor and former dean Tim Fisher.

Tim Fisher

“Each brings a set of clients that need the skill set of the other firm’s roster — that’s a win-win situation where the clients come out ahead and the lawyers in both firms come out ahead,” Fisher said.

Smith said geographical expansion is key in this type of merger as well.

“Some consolidate to try to expand into particular practices, sometimes it’s about trying to expand geographically and looking at new offices,” Smith said.

James T. “Tim” Shearin oversaw three acquisitions while he was chairman of Pullman & Comley from 2013 to 2022, which added more than 20 lawyers to the law firm’s employee base. He said existing relationships between firms, like Carmody and DDN, are always helpful during mergers.

“You’re not dancing with somebody you don’t know, and it helps smooth the discussions that follow,” Shearin said.

Deep financial analysis

Smith, who heads Fairfield Associates’ Washington D.C. office, said whether they are hiring, merging or acquiring a peer, law firms, especially national or regional ones, are getting bigger.

That makes it harder for smaller and midsize firms to compete.

Still, while some of 2023’s mergers so far have been between firms with hundreds of employees, that’s not the norm.

“The majority are not the mega deals, the majority are either small firms merging with each other, or larger firms picking up firms that have between five and 20 lawyers,” Smith said.

Fisher said other drivers of law firm mergers include financial issues, succession planning or weak leadership.

When negotiating a merger, Fisher said, firms first have to align finances. Customer billing rates in addition to partner salaries and compensation have to be worked out.

“The billing rates that the two firms charge, and the rough level of partner compensation …, often have to be the same bell curve — the new firm can’t come in and be a standout either at the top end or at the bottom, that’s unhealthy,” Fisher said.

Shearin agreed, and said the deep financial analysis during a merger is “where the rubber meets the road.” After finances, an aligned strategy and culture are important, Fisher said.

There was initially some trepidation about combining his small team with a larger firm, Noonan said, but the two sides have meshed well culturally so far.

“Carmody is a large firm in terms of the breadth and depth of their experience and quality of their work, but they’re a small firm when you get into their relationships with their employees,” Noonan said.

Smith said she encourages clients “not to grow just for the sake of growth.”

“There’s got to be something else, some strategy around it that benefits clients, like more depth of practices or expanded geography,” Smith said.

For New England and Connecticut, Smith said regional expansion has become a popular reason for mergers and acquisitions.

“I think the firms that might have been only in Connecticut are really looking at a broader regional platform, so that may drive some of the combinations,” Smith said.

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