Catching the Wave
Understanding the impact of Minnesota's Big Law M&A trends (and how locals can compete)
By Brett Larson, Theresa Bea, & Dillon White
In March 2020 we authored a draft article about Big Law mergers for this magazine, but world events abruptly turned our focus elsewhere. It all feels like an eternity ago—both because of the seismic shifts we have witnessed in the global socioeconomic climate and the more subtle changes in the American legal landscape. That article, penned only a year after Minnesota experienced an unprecedented wave of Big Law market entries, centered on a thesis that now seems obvious: The coastal firms are finally recognizing the value proposition of the Twin Cities, but the pace and scale of law firm consolidation may produce unintended results for firms, attorneys, and their clients.
Four years on and five years after the Big Law Wave, the story feels more complicated. So what has happened, and what have we learned?
The undercurrent
For a time during the late 2010s, the Twin Cities remained relatively untouched by the law firm consolidation trend unfolding in other markets. That changed in 2019, and small wonder: By then Minnesota was home to 16 Fortune 500 Companies, nearly half a million small businesses, a large number of high-net-worth individuals and families, relatively low overhead for organizations of all sizes, and three quality law schools—all prime factors in drawing in national and regional law firms with no attorney presence in the market, but typically with some sort of tie to the corporations and clients based here.
A decade prior, in 2009, there had been only 11AmLaw 200 firms with offices in Minnesota. Now there are 29.[1] Notably, however, 13 of those entered the market since 2016—seven of them in 2019 alone.[2] It was a significant year for law firm consolidation in Minneapolis, with Greenberg Traurig, Lewis Brisbois, Drinker Biddle & Reath, Taft Stettinius & Hollister, Saul Ewing Arnstein & Lehr, Lathrop & Gage, and Spencer Fane all establishing themselves in the Twin Cities market.[3] Three of these new law firms entered through a merger: Taft Stettinius & Hollister merged with Briggs & Morgan, Lathrop & Gage with Gray Plant Mooty, and Drinker Biddle with Faegre Baker Daniels.[4]
While the economics behind each of those decisions were undoubtedly nuanced, the financial windfall seemed universally evident: With large multinational corporations headquartered in Minnesota, the AmLaw firms could expand their offices to include a market that appealed to existing clients (including those headquartered here who sometimes opted for coastal firms regardless) while continuing to leverage Minnesota-based attorneys at higher billing rates with lower overhead. It seemed like an infallible plan—until the following year brought a combination of unforeseen circumstances in global health, the transition to more portable workplaces (and blurrier geographical borders), and an understandable reluctance to adapt attorney priorities in the face of drastically changed circumstances and expectations that still has not subsided today.
The result? On average, Minneapolis-based firms that have completed mergers in the last decade have reported shrinking their attorney count in the Twin Cities by almost 20 percent.[5] And while the data on firms entering the market without a merger is not tracked in the same way, anecdotal evidence and salary data suggest a similar pattern of new AmLaw offices in the region either stagnating in attorney count or, in some instances, shrinking.
A rising tide…
Large corporations, especially public companies responsible to shareholders, have a tendency to select counsel based on name recognition. Aside from providing depth and breadth in an array of practice areas and geographic locations, these firms are in some ways safer picks, or at least so the thinking goes. If a large public company has a legal issue that’s imperfectly addressed, the assumption has traditionally been that shareholders are less likely to blame the corporation if they select counsel with a so-called “household name.”
Many larger Minnesota firms saw the prospect of joining up with the national players entering the market as an opportunity to take more game-winning shots. It stood to bolster their positioning among large corporate clients and offer them an opportunity to expand their talent pool of attorneys, thus increasing the services they could provide across industries.
It also offered a crucial lifeline to counterbalance an institutional problem: the aging attorney population and a failure of many midsized law firms to fully commit to succession planning. The well-documented decrease in law school applicants over the last decade,[6] combined with the failure of many law firms and senior shareholders to transition clients and leadership, had resulted in a dearth of attorneys with 10-20 years of experience and the ability to consistently generate business as more senior attorneys aged out of active practice. In considering mergers, many law firms saw the benefits of not only expanding their depth and reaching into new practice areas, but also affording access to a broader range of attorneys to operate a law firm.
…lifts (not quite) all boats
Although the promise of the Big Law Wave was to raise all ships, the reality has played out quite differently in many situations. As noted above, the Minnesota firms involved in the large-scale mergers have reported a sizable decrease in attorney count—yet, interestingly, many have also reported larger profits per attorney. This suggests two critical implications about the legal market here.
First, the Minnesota clients these Big Law firms are servicing—many of whom were clients prior to mergers or large-scale market entries—are facing significantly higher rates than they were five years ago, even accounting for cost-of-living and inflation adjustments. This makes sense from a national firm’s perspective, since the profits must be accounted to the whole firm, and coastal mergers typically bring with them increased rates in regional practices—a situation that grows even more complicated in the event a Minnesota client needs the legal expertise of an attorney at their AmLaw 200 firm who happens to be based in New York or Philadelphia and charges 1.5x to 2x more than the client had previously paid to their exclusively Minnesota firm.
Most acquiring firms communicate to shareholders of the target firm that they will not force rate changes in the immediate future. Nonetheless, rate increases are the natural result of the thesis supporting the strategy. When attorneys based in larger markets begin to leverage Minnesota-based associates at higher rates, resulting in higher realization on that work compared to work at lower rates, the Minnesota target shareholders find themselves competing for their Minnesota-based resources, in many cases causing rates to increase across the board. As a result, the cost of legal services in the Twin Cities market as a whole ratchets upward, creating an opportunity gap for small and midsized firms to compete on price (a differentiating factor that no law firm wants to hedge its business on, but which is nevertheless becoming standard fare). If these regional and smaller firms can overcome the psychological positioning bias enjoyed by the big firms (as noted earlier), they have the potential to win over (or, in some cases, win back) significant portions of the Minnesota market—and, more broadly, middle market businesses on a national scale—especially as legal budgets continue to tighten.
Second, the dynamics described above have also directly affected the attorneys with the target firms in some positive and some negative ways. While national firms generally deliver on the promise to provide consistent work for Minnesota-based attorneys, the trends described above regarding internal rate pressures have caused many of the Minnesota attorneys to be priced out of their books of business and, in some instances, the local and middle markets altogether. For attorneys who value having a consistent source of work over autonomy, this can be a positive. For partners who value the autonomy that comes with managing their own practices and clients, becoming more of a “service partner” is a dynamic that yields a different risk: reliance on the firm for consistent work, accompanied by a loss of autonomy and mobility. This dynamic affects younger associate attorneys in a similar manner; they are directed and incentivized to bill hours and to rely on the firm to provide business—and are either disincentivized or simply not supported in growing their own networks and practices.
Taken together, many of the reports from firms and research outlets on attorney numbers illustrate a troubling trend: larger profits per attorney but smaller attorney headcounts. This phenomenon may be in part attributable to the way firms are classifying their lawyers—specifically, by not counting part-time or “of-counsel” roles in their attorney denominator.[7] The wave of mergers and consolidations has generally resulted in new equity standards, with many attorneys shifting from shareholder status to “of counsel” or “senior counsel” status. The fee generation required in the larger firm structure is significantly greater than it has been historically, and one result has been the de-equitizing of many shareholders by the acquiring firm. Along with higher fee generation thresholds, shareholders are also required to pay a significantly higher equity buy-in than traditionally required in the Minnesota legal market, likely spurring some of the shifts in classification within the newly formed partnerships. Shareholders may also see restrictions on status due to mandatory retirement ages in the early to mid-60s[8] (a number much lower than the typical age of retirement in the Minnesota legal market).
Furthermore, anecdotally, shareholders at these firms have expressed concern over the lack of transparency and certainty regarding the compensation and benefits offered when a larger firm takes over. These shareholders suddenly have less autonomy and control over their own business in the short and long term, and associates are not supported or incentivized to develop their own practices and clients.
On the flip side, as more senior shareholders phase out to part-time roles, younger attorneys have demonstrated shifting workplace priorities. Over 60 percent of associates are open to new job opportunities or are actively seeking them; dissatisfaction with compensation and management decisions regarding firm culture are the top two reasons given.[9] With a growing emphasis on work-life balance, younger associates have consistently reported since 2019 the willingness to trade portions of their compensation for either more time off, a flexible work schedule, or a cut in billable hours—a trend that has remained steady from 2019 to 2024.[10] Many associates involved in the major mergers and consolidations in Minnesota expressed initial excitement about the addition of quality attorneys, the larger practice groups, and the wider geographic reach, but the reality of the shift has made their path to partnership longer and less certain. This ambiguity, combined with a significant increase in billable hours requirements and less involvement in leadership opportunities, has pushed many talented associates out of private practice and into in-house roles.
The result is a heightening of pressures that already existed in the Minnesota legal market. The entry into the market of larger-name firms and higher promised salaries carries with it an expectation of high hours and high rates, which leave attorneys with little time or opportunity to grow a practice. The future of the landscape for lawyers and firms within the state may well be dictated by how they adapt in the next three years.
Charting a course ahead
The data gathered in the five years since the Big Law wave has afforded us a glimpse into the realities of the Minnesota legal market as a whole, and the lessons learned from its analysis can chart a course forward for firms of all sizes, but especially for midsized to large firms that may be operating too similarly to their Big Law counterparts. Law firms must carefully navigate the short-term future in order to secure long-term success, but rewards lie ahead for bold leadership that shows a willingness to cater to novel generational needs while still appeasing the old guard of shareholders that brought their firms so much success. It is likely that several approaches here will prove fruitful.
First, more senior shareholders must be provided a clear path to retirement that works with them to accommodate their needs and align their goals with those of both the successor attorney and the law firm. Many attorneys exhibit serious signs of depression and emotional distancing when leaving their practices abruptly.[11] For most, their identity as a lawyer is a core part of who they are and how they value themselves; when it disappears suddenly, the results can be disastrous on their physical and mental health.[12] Firms of all sizes, but especially larger ones where relative anonymity and geographical disparity can result in fewer personal relationships between the originating and working attorneys, would benefit from an approach to succession that rejects any one-size-fits-all solution. Some firms have enjoyed tremendous success in handing off the retirement proposals to the attorneys themselves to initiate. The most successful plans provide the retiring attorney with certainty as they cede primary control over their valuable client relationships to others, and they align the retiring and successor attorneys with the goal of maintaining relationships with key decisionmakers on the client side, and then expanding the lines of services provided to those clients. If properly planned and executed, a well thought-out succession plan will provide the successor attorney with clear paths to a book of business, while ensuring the retiring attorney has relative certainty as they set sail into unknown waters.
Second, younger associates must not be treated the same way as their predecessors. In many leadership meetings across firms of all sizes, the seats around the table are filled by attorneys who exhibit many of the traditional traits of a senior lawyer—overworked, overburdened, and underwhelmed by their younger counterparts. This often translates to a fairly rigid leadership style that expects conformity with the leaders’ own mindset and approach to work, rather than one that accounts for the seismic shift in cultural attitudes toward work—a massive sea change whose effects we may not fully understand until decades from now.
It’s no secret that younger workers across all industries expressed their disenchantment with the stereotypical American dream during the pandemic years.[13] Many witnessed their workplaces shedding employees in order to save the bottom line for the upper echelons of the organization—an often necessary evil for business owners, but one that undoubtedly left a sour taste in the mouths of many younger workers.[14] Associates are seeking more work-life balance now, and that means law firms need to remain open to change and to developing opportunities outside of the traditional working space. For some, this means regular training opportunities across varying areas of law and business. For others, this means firm support to succeed on their own—to build a book of business that makes them less expendable in times of economic turmoil. For instance, almost 60 percent of associates report a desire to spend more time on business development—yet nearly 70 percent report having no business development budget.[15] To address potential long-term succession planning problems, law firm leadership must evaluate the importance placed on business development for its associates in order to ensure continued growth and stability, both for the firm itself and for the younger lawyers within its ranks. This will likely mean an investment that reduces short-term profits for the older guard—but, like any sound investment, it will eventually yield exponential returns.
Finally, firms must consider a change in how they approach leadership decisions. Attorneys of all generations often express a concern over feeling excluded from charting the future of their firm. This is, to a large extent, unavoidable. It’s human nature, especially for lawyers, to feel paranoid when others are making decisions that affect you. But one solution is to modify traditional roles in the leadership room, bringing seats to the table that span generations, experience, and responsibility. This approach, if done correctly, provides a more accurate cross-section of a firm’s makeup and offers a voice to more attorneys and staff who may have historically felt left out. The result will be better decision-making and the introduction of novel ideas that more accurately reflect the marketplace—such as investing in a firm’s philanthropic direction, a vision-line that many younger associates now rank as one of the most important factors in making a career decision.[16]
Above all, finally, transparency is key. At a time of massive change in the markets and in attorney priorities, bringing light to the traditional darkness will never steer you wrong. If you’ve ever tried sailing at night, then you know exactly how that feels.
BRETT LARSON is a shareholder and the chair of the Minneapolis Division at Messerli Kramer. In addition to overseeing business operations in the Minneapolis office, Brett centers his practice on mergers and acquisitions, corporate organization, and succession planning for privately held businesses and their owners, particularly in the lower and middle markets. blarson@messerlikramer.com
THERESA BEA is a shareholder at Messerli Kramer with an extensive practice in family law and juvenile law. She is also the chair of the MK Foundation, which serves to bridge the gap in education disparities among low-income communities and disadvantaged youth throughout the state of Minnesota. tbea@messerlikramer.com
DILLON WHITE is a former attorney and law professor turned head of business development at Messerli Kramer. He is a recurring guest on many local and national networks to break down complex legal issues, a skill that has also amassed him a digital media following of almost 5 million. dwhite@messerlikramer.com
NOTES
[1] Rehkamp, Patrick. How the American Lawyer 200 firms in the Twin Cities Break Down by Revenue, Profits Per Lawyer. Minneapolis/St. Paul Business Journal. 2022.
[2] McMahon, Brian. The Minneapolis Law Firm Market Changed Dramatically in 2019. Major, Lindsey & Africa. 2019.
[3] Id.
[4] Id.
[5] Maloney, Andrew. In Law Firm Mergers, Growth Isn’t Guaranteed. American Lawyer. 2022.
[6] Patrice, Joe. Law School Applications Are Way Down And It's Bad News For The Profession. Above the Law. 2022.
[7] Supra note 5.
[8] Padien, Christina. Rethinking Mandatory Retirement Age: A Win-Win for Lawyers and Law Firms. America Lawyer. 2024.
[9] Major, Lindsey & Africa. Searching for Balance: Millennial Lawyers’ Perspectives on the Legal Industry. 2023.
[10] Id.
[11] Rabin, Corey. Litigation, Professional Perspective - A Wellness-Focused Retirement & Avoiding Substance Overuse. Bloomberg Law. 2022.
[12] Id.
[13] Cowan, Benjamin & Shayne Garcia, Kairon. How Has Covid-19 Affected Young Workers? CESifo. 2021.
[14] Id.
[15] Supra note 11.
[16] Supra note 13.