In the dynamic Central and Eastern European legal sector, the trend of law firms merging and consolidating has become increasingly prominent. This trend is driven by a quest for synergies, expanding the client base, achieving cost savings, and gaining a competitive edge in the war for talent.
When Weil Gotshal Manges decided to shutter all three of its offices in CEE, which had been growing organically for years, and we opted to become independent, I never would have believed that we would soon thereafter merge with another law firm, especially given that most examples of law firm mergers more often prove to be recipes for disaster rather than success stories. After becoming independent, we made a strategic decision to transform our firm from a transactional house into a full-service firm. After two years of organic growth, we opted to push the boundaries and take a significant leap forward by merging with a firm that was an established leader in practices in which we had not previously engaged. Was it a necessity? Building such practices from scratch was certainly possible, but given the current, quite mature state of the legal market in CEE, such an endeavor would have taken years and significantly delayed the achievement of our goals.
Law firms in CEE are increasingly pursuing growth strategies that drive them to merge – seeking to combine strengths to better compete, and ultimately to increase the relatively low fee levels across CEE (at least when compared to most Western European countries, not to mention the UK and the US). Our case illustrates a strategic pivot from a transactional house to a full-service firm, achieved not through slow, organic growth, but by way of a bold and unprecedented merger. Such moves underscore a significant trend: in the fiercely competitive legal market, building a comprehensive service portfolio from scratch is both time-consuming and risky in comparison to merging with an existing firm, which can result in the merging firms complementing one another and enhancing their overall capabilities.
This consolidation trend is not uniform across CEE. While markets like the Baltics have seen legal service firms consolidate significantly – quite soon after the fall of communism, firms like Sorainen, Cobalt, Ellex, and TGS Baltic grew considerably. However, the Polish market, similarly to a number of other CEE markets, lags behind, highlighting the uneven pace of consolidation across the region. That said, even in the Baltics, the trend continues with the recent Walless and Fort merger serving as a perfect example. In parallel, regional law firms such as Wolf Theiss, Schoenherr, and Kinstellar continue to expand their operations throughout the region by opening new offices and hiring large lateral teams from local competitors.
From the perspective of a corporate M&A lawyer, mergers are an appealing path for growth. However, when viewed through the lens of a Managing Partner, the perspective shifts slightly. Growth for its own sake, without enhancing profitability, is unwise. Mergers allow firms to expand into new practice areas and regions with reduced risk and increased efficiency. This is particularly relevant given the current economic conditions, which are marked by rising costs and competitive fee arrangements, both of which disproportionately affect smaller firms unless they are able to find specific niches in which they can operate as top-choice firms for clients.
All that said, mergers are not without challenges. Integration can be complex, disruptive, and laborious. Cultural clashes and operational difficulties often arise, especially when leadership roles are dominated by Partners from one of the merging firms. Furthermore, while some firms may choose organic growth, this path presents its own set of challenges, notably in connection with recruiting and retaining talent.
Despite these challenges, the competitive nature of the legal market and the continuous need for technological advancement through substantial investments in AI and other technologies make mergers an attractive, if not necessary, strategy for law firms.
While the consolidation of the CEE legal market may have elements of trendiness, it is largely driven by the essential need of law firms to remain viable in an increasingly competitive and complex environment. The strategy of merging to mitigate risks and enhance service offerings is not just fashionable – it is a necessary adaptation to the evolving demands of the legal services industry. As the sector continues to navigate through economic and operational challenges, this trend toward consolidation is likely to persist (and may even intensify further) and shape the future of legal services in CEE.
By Pawel Zdort, Managing Partner, Rymarz Zdort Maruta
This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
