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Are Mergers in the Legal Sector a Bad Thing?

An Overview of Mergers Between Law Firms and What it Means for the Future of the Israeli Legal Sector

Throughout the past decade, the number of mergers between law firms in Israel has increased significantly. Whereas in the past there was a substantial amount of large, medium, and boutique-sized firms, there has been a shift due to firms deciding to merge. Larger firms are continuing to merge with medium and boutique firms, creating mega-firms, comprised of hundreds of lawyers and interns.

In March of 2022, the largest merger between two firms in Israel was ever completed. Yigal Arnon & Co & Tadmor Levy & Co merged to create the firm Yigal Arnon – Tadmor Levy. This merger brought together over 350 lawyers and 70 legal clerks, which makes it now the third-largest firm in Israel. This wasn’t the first merger for Tadmor Levy, as they had previously merged between Tadmor and Prof. Yuval Levy in 2015.

Another major merger in the US is Schiff Harden and Arent Fox which were recently linked, forming a combined firm a 600-person firm. Their combined revenue is projected to be $475 Million. This is one of 33 large-scale mergers that happened in the US within the past year, and the trend doesn’t seem to be slowing down.

This trend, coupled with the migration of lawyers to other sectors is creating a divide between the skill and competency of lawyers practicing in Israel. According to a recent report, close to half of the Israeli attorneys believe that they biggest issue within the legal system is insufficiently professional lawyers. Additionally, close to half of the attorneys said that the biggest issue that would hinder the development of firms in the future – is the shortage of talented staffers.

One of the notable sectors that lawyers are leaving to, is the high-tech industry. Many lawyers are taking their talents to other industries where they can use their knowledge of the legal world and apply it in a new way. Whether it is becoming an in-house counsel for high-tech companies, moving to business development and compliance, or even legal marketing, there are numerous fields that are demanding lawyers and not enough people to meet this demand.

The gap in the quantity of sufficient attorneys has created a lapse in the trust between clients and lawyers, which is one of the more important factors that clients consider when choosing an attorney. To mitigate this risk, larger firms are attempting to scoop up the smaller firms to keep their firms staffed.

This pattern of increasing the size of firms has many advantages for the attorneys within the firm. Besides the fact that management can have enough capable attorneys, it creates a brand image that is more well-known and gives off a stronger look. Most of law firms’ clients say that they consider a firm’s integrity when choosing a lawyer, and by working for a big-name firm it helps maintain this image of professional integrity that its clients desire.

Another benefit of larger firms that could be playing a role in the trend toward larger firms (and mergers), is the ability of boutique firms to compete with the larger firms. Both types of firms can offer different things that the other typically is not associated with. For example, large firms utilize in-house lawyers who specialize in all types of law. It can be much easier to handle large-scale deals in this type of environment when many different types of lawyers are required. But as for a smaller scenario where the client values the availability and personal connection more, boutique firms may have the upper hand. For the most part, clients tend not to prefer large or small firms over the other, and ultimately it comes down to who can offer the better services based on their specific needs.

As the legal sector in Israel continues to change, the divide between large and boutique firms will continue to grow, especially as the sector of legal tech continues to grow. This will lead to the decline of medium-sized firms, as they will either lose attorneys and shrink in size, or they will merge with other firms to try and compete with the big players.

This trend may address the concerns of both lawyers and clients, by attempting to fix the shortage of insufficient lawyers and helping lawyers who are capable of properly serving their clients align themselves in a way that allows for the best experience for the client. As for the legal sector, maybe the divide is not such a bad thing and should be looked at with a more optimistic view.

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