Often in the legal industry we discuss the path to starting your own firm or spinning off from your current firm. However, there are times when you may consider the reverse – strategically combining your firm with another through a merger or acquisition. This option can serve to propel your firm’s future growth when completed successfully, but careful planning and consideration are key to achieving your ultimate goals.
Here are 5 tips when researching whether a merger or acquisition is right for your firm.
Contemplating a merger solely to grow your firm is not enough. Take the time to really define what you want to achieve by joining forces with another firm. Perhaps you want to expand practices areas in which you’re able to serve clients and you’re looking for a firm to partner with that specializes in litigation that you currently do not. Or, maybe you have such a heavy caseload that you need to add significant staff and back office operations in order to accommodate client needs. In that case, perhaps you’d reach out to firms that have similar expertise and a solid reputation. Law firm mergers or the acquisition of another firm can also act as a way to more quickly expand your geographic scope, enabling you to reach new markets via a firm with an established presence.
Whatever the case may be, you should spend substantial time outlining the goal of the merger and specify what type of synergies you will need in a partner firm to achieve your identified goals.
Once you’ve established exactly what you hope to achieve, you can begin to determine if there’s another firm that’ll fit the bill for a strategic partner. It’s advisable to keep the beginning stages of the process relegated to the partners and leadership of the firms, while you evaluate how the other firm may and may not be a good fit.
Bringing your attorneys and staff into the process should be done carefully, so you can foster a cohesive atmosphere down the road once a match is officially made. Accordingly, company culture is a major component of combining teams so that’s a good place to start the conversations. When speaking to potential candidate firms, talk with the owners and partners about how they run their firms, what values they hold paramount and how that translates to their employees. Are they very much one unit working together, or do their attorneys operate in silos largely as individuals? Do they place importance on work-life balance and is the staff generally content with the work environment? If company cultures don’t line up, it’s unlikely a partnership will be successful in the long-run. Be sure to have the tough conversations up front, so as not to waste time on either firm’s end if it’s ultimately not going to be a good fit.
Like any business transaction, due diligence is an integral component. You’ll need to evaluate a potential partner firm’s structure, business model, case portfolio, financials, operations, attorney compensation, and more. If your firm makes distributions differently than the other firm, you’ll need to hash out what method makes the most sense for the new firm after the merger or acquisition. Make sure each side knows what they are getting – transparency is key.
Look for conflicts early on in these discussions and address them from the start. If you run into an obstacle and aren’t able to come to a resolution, it may be a deal breaker. Thus, it’s best to uncover these potential roadblocks earlier rather than later in the event that it may halt the new arrangement.
Additionally, you’ll need to map out what capital needs will exist once the firms are combined and what each side is expected to contribute. Are you planning to open new offices, or will there be a cost to moving operations and staff to a new location? Are there contract obligations either firm are tied to that will continue through the merger? In the case of an acquisition, what new expenses will the acquiring firm need to take on? Depending on the circumstances, one or both sides may experience an influx in capital outlay. Planning ahead and securing or increasing those resources is another important step in the process.
A merger or acquisition can be used as a springboard to establish best practices for the new firm. Ideally, you have two strong firms coming together or at least can value certain aspects of the other firm. Use this opportunity to take the best from each side and establish common protocols for moving forward. Perhaps one firm has mastered back office operations and you want to implement those processes that have already been proven. Maybe the other firm has an employee incentive program in place that energizes its staff to put their best foot forward. Draw from each firm’s strengths to set forth policies and procedures from the start to pave the way for a cohesive team, well before the deal is done.
The challenges don’t end once the transaction is finalized. In fact, that’s when the hard work begins. Use the best practices you’ve developed to immediately portray the new firm as a cohesive unit operating as one team. Each side will come with their opinions and emotions about the deal, and you want to abate any resistance whenever possible. Fostering a sense of collaboration that motivates everyone to work toward building this new and even better entity will be imperative.
Be sure to watch for warning signs that may indicate things are falling through the cracks, such as weakening financial performance, employee turnover or loss of clients. Though these things may occur on some level, as change tends to bring about more change, anything beyond what has been deemed as “expected” should be carefully monitored as it may indicate a larger problem. Your clients can also provide a good barometer of how well the transition is going—if they feel that the new firm is equally or even more effectively meeting their needs, things are likely on the right track.
Conversely, keep tabs on any exponential growth the new firm may experience post-transaction. While a positive outcome, you’ll want to ensure you have the time and resources to effectively manage an increase in caseload or mounting trial expenses as a result of the new firm’s success. Having a source of stable capital in place to serve the new entity is a proactive step to be sure you’re ready to tackle any challenges and actively pursue any opportunities that come your way during the process and thereafter.
If your practice has business goals you feel can’t be met as an individual firm, it may be wise to research the possibility of a merger or acquisition. Proper planning and lengthy discussions with potential candidates are critical to both parties’ success. Taking the time to find the best match for your firm will help ensure future growth toward building a new and better firm together.
Sources:
https://www.blankrome.com/siteFiles/publications//AE44FD52E8FF5D406FC2C0938D45989F.pdf
https://www.abajournal.com/magazine/article/successful_law_firm_merger
https://www.abajournal.com/magazine/article/law_firm_networks