Call it a kind of law-firm Darwinism.
A few years ago, it was possible to read any number of reports pronouncing the death of Big Law. Mammoth firms were too inefficient, too slow, and - most important for their clients - too expensive.
And it is true, ever since the 2008 financial crisis caused corporate America to rein in its legal spend, some very big law firms have bit the dust.
But the Morgan Lewis & Bockius L.L.P. announcement Friday that it plans to acquire much of Boston-based Bingham McCutchen also suggests some law-firm heavyweights will thrive in an era of tighter legal budgets and tougher competition.
This is a process in which stronger firms are gobbling up weaker competitors.
When the deal closes at the end of the month, Morgan Lewis will vault into the very top ranks of global law firms, a first for a firm based in Philadelphia.
Morgan Lewis projects the combined firm will have revenues of about $2 billion a year and nearly 2,000 lawyers, putting it in the top five based on rankings compiled by the American Lawyer magazine. At the top is the global law firm DLA Piper at $2.5 billion, followed by Baker & McKenzie of Chicago at $2.4 billion.
"Big Law is not over for some firms," said law-firm consultant Robert Denney of Wayne. "But there are some firms that are having more trouble than they would like to admit."
Put Bingham McCutchen in that category. People familiar with the transaction say the firm's trouble became apparent in 2012 when it sustained a 12.6 percent decline in revenue. Partner defections followed, and that, accompanied by debt, weakened the firm's financial underpinnings. As a consequence, it considered filing for bankruptcy if the deal with Morgan Lewis did not go through.
A seemingly chaotic compensation system in which high-profile hires were given lucrative, multiyear contracts further undermined the Boston firm. After the pullback in the legal market, such contracts were a strategy employed by many firms. The idea is to recruit lawyers with large books of business to boost a firm's finances. But the contracts caused dissension among partners who didn't have them.
Morgan Lewis, which has about 300 lawyers in Center City and about 1,400 lawyers worldwide, was well-positioned to do the deal for the opposite reasons.
It traditionally has avoided debt and has been very careful about costs. It avoids lavish lease deals and special partner perks, and emphasizes a flat hierarchy. When the crash came, the firm decided not to recruit an incoming group of summer interns in 2010, a belt-tightening step that both caught the attention of the legal industry and shocked law schools that had counted on Morgan Lewis as an employment market for young graduates.
Because the deal has yet to close, the Morgan Lewis leadership has declined to comment on the combination of the two firms.
But people with knowledge of the deal say a key element was receiving commitments from 227 of Bingham's 300-plus partners to join Morgan Lewis and remain there for several years. As an inducement to Bingham McCutchen partners with substantial books of business, Morgan Lewis has agreed to pick up some Bingham liabilities, such as office lease costs. But to make that work, Morgan Lewis insisted a critical mass of Bingham partners stay at Morgan Lewis for a minimum period to ensure adequate revenue to cover the cost of the transaction.
Beyond that, top Morgan Lewis partners - including chair Jami Wintz McKeon and Steven Wall, who oversees the firm's practice groups - huddled with Bingham partners in meetings around the country to provide assurances that they could make the transaction work.
Key to that was Morgan Lewis' track record in picking up large groups of lawyers both in the United States and abroad as it implemented its growth strategy. One potential model was Morgan Lewis' decision to recruit some 160 lawyers in 2002 from the failing California firm Brobeck, Phleger & Harrison L.L.P. The deal was based in large measure not only on Morgan Lewis' strong financials but also on the personal touch that McKeon employed in recruiting Brobeck partners and insuring that they were well-integrated into the new firm once the deal went down.
Quite apart from the fact that Morgan Lewis will be acquiring Bingham McCutchen, Morgan partners do not view themselves as law-firm opportunists swooping down on a weakened competitor. Rather, they say the transaction works to Bingham lawyers' benefit because of Morgan Lewis' strength and the assurances that provides.
"It's not like they are a wounded gazelle and we are pouncing on them," one Morgan Lewis lawyer said.