Law Firm Merger Rush: Winning Move or Own Goal? A "Weight-Class War" Shakes Up the Landscape

Barun and DONGIN, DR & AJU and LIN
Law firms pursue mergers one after another
Departures over disagreements and difficulty adapting
Representing opposing parties at the same time
Also raises conflict-of-interest concerns
Clashes o

A "merger storm" is sweeping the domestic law firm market. As midsize and large firms pursue one merger after another in hopes of surviving and growing, the rankings are also expected to shift.

According to legal industry sources on October 20, if the planned merger between Barun and Dongin Law Firms goes through, the combined firm will have 532 Korean-licensed attorneys, taking it past the 500 mark at a stroke. That would narrow the gap with Yulchon, one of the "Big Five," which has 574 attorneys, to just 40 to 50. The merger of DR & AJU and LIN, which is set to be completed this month, would also have a significant impact. The two firms have a combined total of 384 Korean-licensed attorneys, putting them on an equal footing with Yoon & Yang, a powerhouse currently ranked around sixth with 372. However, having learned some painful lessons about the "growing pains" of expansion through multiple mergers and acquisitions (M&A), leading firms have fueled considerable skepticism, with some saying, "We'll have to wait and see whether the merger creates synergies."

Attorney Departures Before and After a Merger

The first major hurdle before and after a law firm merger is attorney attrition. Even when two firms with 50 Korean-licensed attorneys each plan to merge into a 100-attorney firm, the number who remain after the merger often falls to just 70 or 80. Some attorneys pack up and leave in the early stages of merger talks because they oppose the direction of the deal. Others fail to adapt to the different organizational cultures after the merger and move to other firms, triggering a "second exodus."

Conflicts of Interest and Compensation Structures Are Key Flashpoints

Conflicts of interest, which can force firms to accept a drop in revenue during a merger, are the biggest flashpoint. Under the Attorney-at-Law Act, a law firm is prohibited from representing both parties on opposing sides of the same matter. For example, if Law Firm A is representing a major company in a key patent lawsuit and Law Firm B is handling a case for that company's competitor, the merged A+B firm would have to give up one of the clients. In one such example, Law Firm C, which mainly handles litigation with large companies as defendants, reportedly abandoned its merger plans altogether, having concluded that merging with firms whose work consists overwhelmingly of advising large companies would be impractical.

Conflicts over management philosophies and compensation structures are also a problem. Domestic law firms broadly fall into two categories: firms centered on attorneys who previously worked as prosecutors or judges, and firms centered on career attorneys. Attorneys who previously served as prosecutors or judges are generally accustomed to compensation structures closer to those of independent practitioners, such as sole-practitioner attorneys. As a result, they often use a revenue-sharing model known as a "separate accounting system." Under this arrangement, an attorney pays 40% of the revenue they generate toward the firm's shared expenses and keeps the remaining 60%. By contrast, traditional large law firms transparently disclose the firm's total revenue and all expenses, pool them under an integrated accounting system, and then distribute the proceeds based on partners' shares, contributions, and performance points. A legal industry source said, "Firms centered on former prosecutors and judges have repeatedly failed when trying to merge with other firms because of these incompatible structures. They face internal strife as they try to unify their income-sharing principles."

Gradual Integration Is the Best Approach

Recent law firm mergers are taking a different approach from those in the past: "unify the branding first, then follow a roadmap for gradual integration." In a typical corporate M&A, the companies conduct thorough due diligence, integrate revenue per employee and cost-sharing structures, and then launch as a combined entity. But in law firm mergers, it is difficult to finalize all the rules before the merger. The firms announce the combined number of attorneys under the new firm's name externally, while internally retaining their previously separate accounting and distribution systems and gradually integrating them over several years. One law firm managing partner said, "With cutthroat competition in the legal market and AI now on the scene, we're questioning whether it makes sense to expend this much energy on a merger."

In the AI Era, Will Law Firms Be Too Big to Fail?

Despite this, law firms are interested in merging because corporate clients tend to divide firms into Tier 1 and Tier 2 based on the number of Korean-licensed attorneys when deciding where to assign work. The managing partner of a midsize law firm in Seocho-dong said, "Large firms take corporate cases, network law firms capture the market for individual clients, and boutique firms are also joining the fray." He added, "Midsize firms are desperate to at least grow in size and retain their ticket to the 'major leagues' if they are to survive."

Some argue that it is not appropriate to rank law firms by size based on the number of Korean-licensed attorneys. They say the key indicators should be PPP (Profit Per Partner) or PPA (Profit Per Attorney), rather than the firms' headcounts. Another law firm managing partner said, "The quality of services firms provide and their productivity per attorney vary enormously."

This content was produced with the assistance of AI translation services.