Considering A Law Firm Merger In 2021?

Hayse LLC
Contact

For the last decade plus, merger has been a strategic choice for many law firms. The 2020 pandemic had a negative impact on the quantity of mergers but, many including our firm expect there to be a major uptick in 2021.

Given the probability that firms will at least be considering merger as part of their go forward plan, it seems prudent to think about what a good merger partner should look like.

To that end, here are 10 questions you should answer before having a conversation with another firm:

  1. What principal characteristics of your existing culture are most important to you. A lack of cultural compatibility is difficult, if not impossible to overcome, and one of the reasons so many combinations fail.
  2. In what rate tier do your clients exist. A lack of similarity in realized rates drives conflicts in staffing client files, compensation and a host of other critical law firm areas.
  3. What additional expertise (whether new to your firm or additional depth in existing areas) will allow your firm to make desired progress in targeted areas of growth.
  4. What are your key financial metrics. A good merger partner will have economic metrics that are similar to yours (of course unless your firm is failing). Metrics significantly different from yours — whether better or worse — will lead to painful pressure for one party or the other on rates, hours and retention.
  5. What aspects of your current compensation system do you most value. Merging with a firm with a significantly different approach to compensation will almost certainly result in a different relative treatment among your existing partners, possibly with unexpected negative consequences.
  6. What size of merger target best serves your firm’s goals? Questions like are you comfortable being a small outpost of a mega firm, or even small relative to your merger partner are good questions to think about. The greater the size disparity in a combination the less “say” the smaller firm will have in future decisions.
  7. Is your firm facing succession issues? If so in what specific way would you like to see a merger partner solve those issues?
  8. In addition to your existing footprint, what additional geographic presence would bring value to your firm, and why?
  9. What type of governance are you and your partners most comfortable with. Firms are governed in a range of ways, from very democratic to tremendous authority being vested in a few. It is important to know in advance what you are comfortable with and what is off-the-table in terms of governing options.
  10. What level risk do you think is reasonable? Risk in a law firm includes bank debt, partner turnover, unfunded pension plans, pending or threatened litigation and loss of key clients. Understanding your risk-tolerance is key to a successful merger.

The answers to these questions, and the impact the answers will have on your approach to a merger possibility will vary depending on whether you are acquiring or being acquired; but the greater the variance between how you feel with respect to these 10 issues, and the reality of the world you’re considering will be a predictor of the success of the combination.

If a strategic merger is in your future, smart leaders will engage in identifying the things that are most important to their partners; far too many mergers occur without defining in advance what a firm is seeking, and why.

Written by:

Hayse LLC
Contact
more
less

Hayse LLC on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.