There’s been a lot of talk about law firms merging or combining in today’s hot legal market. But is it a prudent or a good decision or should you skip the opportunity?
For law firm combinations to make sense a lot of things need to fall into place. Financial considerations are hugely important to any combination.
And so are culture, firm size, practice mix, geographical footprint, shared views on long-term strategy and growth, practice systems, compensation structures, and the list goes on.
Here are some things to think about as you consider whether to merger/combine.
Will the merger or combination:
- Enhance the firm’s competitive advantage?
- Increase the firm’s lawyer bench strength?
- Add practice areas that are complementary to existing areas?
- Expand the firm into other key geographic markets?
- Increase or diversify the firm’s book of clients?
- Solidify client relationships?
- Increase the depth and breadth of services?
These would be the right reasons to consider a merger or acquisition.
Your firm should take pause if the reasons you are considering merging or acquiring the other firm include:
- Merging because other firms are merging
- Merging internal weaknesses
- Merging solve financial problems
- Merging to address issues involving unproductive/underperforming partners
There are many factors to weigh in deciding to merge or combine, such as the firm’s
- clients/client mix
- office footprint
- financial performance and overall economics/debt
- infrastructure, including IT and communications systems and practices
Having lived through a merger firsthand I can tell you just how hard it is – and how even if you check off all the boxes it still might not work out or be perfect. Some things are not predictable from a spreadsheet and myriad of meetings, no matter how many times you analyze it – it boils down to market conditions and culture fit.
Preparation is key of course. Here are some of the things that helped when I was going through the merger process (I was an in-house law firm marketing person at the time working directly with firm leadership on the process).
- Client base
- Spread of clients – fees generated by top 25 and 26–50
- Clients by rank for past 3 years
- Details of all panels – duration, other firms, fees from panel clients, rates, relationship partner(s)
- Departmental marketing plans
- Recent RFPs won and lost
- Competitor list
- Structure of practice groups
- Ease of integration of practice management systems, databases, other IT
- New systems installed – past 2 years
- Proposed new systems
- List of all IT systems used
- Lease commitments for all IT – amount, duration
- Demographics of partnership
- Entry and exit of partners
- Performance management of partners
- Voting rights of partners
- Current partnership agreement
- Age, practice area, date joined firm of all equity and salaried partners
- Equity share of all equity partners
- Pathway to full equity partnership – admission criteria and process
- Partner performance criteria
- Partner draws – past 2 financial years
- Management roles of partners
- Laterals in pipeline