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Merging Firms: The New Lay of the Land in Israel and Beyond

Mergers. We’ve seen them before, but now we are seeing them over and over again.  

In recent years, there has been an increase in mergers and acquisitions within the Israeli legal market. This trend has continued to rise, with many firms joining forces to expand their services and market reach.

The market is ‘booming’ like never before with some insiders at Robus suggesting that the past three years’ worth of mergers are equivalent to the volume of mergers seen over three decades in the sector.

A prime example is Herzog, an Israeli law firm that once shied away from mergers, recently announced the integration of 14 lawyers from Balter Guth Aloni & Co. into their litigation department, further illustrating the ongoing consolidation trend.

It seems Herzog is just dipping their toes into the merger trend, while others have created mega-firms (by Israeli standards) comprising hundreds of lawyers and interns.  

At the start of 2023, Goldfarb Seligman and Gross announced their merger, forming the new entity ‘Goldfarb Gross Seligman’ and propelling themselves to the top of the industry in terms of size. With over 520 lawyers, they surpassed Meitar, Herzog, and Arnon (which, by the way, merged in March 2022), all highly respected firms in the industry.

Here’s a recap of the recent mergers in the industry:

  • Yigal Arnon & Co. merged with Tadmor Levy in March 2022 consisting of 350 lawyers;
  • Agmon & Co. Rosenberg Hachohen & Co. merged with Tulchinsky Marciano Cohen Levitski & Co. in December 2022 consisting of 180 lawyers;
  • Hamburger Evron with Erdinast Ben Nathan in May 2021, consisting of 160 lawyers;
  • Toledano & Co., S. Friedman & Co. with Efraim Abramson consisting of 120 lawyers;
  • and the dissolution of Eitan Mehulal with their lawyers dispersing among Fischer, Gornitzky, Barnea Jaffe Lande, and Naschitz Brandes Amir in March 2022.

It is becoming clear the legal industry in Israel is experiencing a growing polarization trend. This means that on one end, there are large firms that are expanding, and on the other end, there are small boutique firms that concentrate on specific areas. In contrast, the middle layer of firms is gradually declining.

This trend is coupled with a migration of lawyers to other sectors, creating a divide between the skill and competency of lawyers practicing in Israel. Many lawyers are taking their talents to other industries, such as high-tech, leading to a shortage of sufficient lawyers in the field, especially mid–senior level associates.

Larger firms are attempting to scoop up smaller firms to maintain their staff and brand image. As the legal sector in Israel continues to change, the divide between large and boutique firms will continue to grow, leading to the decline of medium-sized firms.

Adv. Zohar Fisher, founder, and co-head of the mergers department at Robus says that boutique firms are faced with two choices: a merger or carefully laid strategic plans to secure their status on their own.

“Boutiques that intend to engage in more than one or two specific fields of practice and begin to diversify will not survive the crisis. The mega offices compete for every client’s heart, and the advantage of boutique offices is the professionalism and hands-on approach of senior professionals in the client’s transaction or portfolio. A firm that diversifies will face fragmentation and loss of clients, and ultimately, a merger out of weakness” says Fisher.

Mergers International Inc.?

The trend is visible elsewhere in the world. According to a recent report by Reuters (link), the number of completed U.S. law firm mergers in 2022 increased to 46 from the pandemic-era slowdown but remains below the 10-year average of 55 deals per year.  

As in Israel, smaller and mid-size firms may be feeling pressured to scale up to remain competitive, while larger firms may seek a smaller firm to gain a performance edge.

The bottom line

The changing landscape of the legal industry in Israel will result in a growing gap between large and boutique law firms, with the legal tech sector slated to become a huge contributing factor to survivability (more on that later).

The trend is expected to lead to the decline of medium-sized firms, either through a loss of lawyers and reduced scale or through mergers with other firms to compete with larger firms.

Only time will tell.

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