Five Reasons for Law Firms to Think About a Merger in 2018

by Hayse LLC
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There is much to do when a law firm closes out its year.  Getting bills out, collecting receivables, paying bonuses, and distributing profits are but a few of the things that get the attention of leadership.  As long as the firm’s year has moved along normally, finishing up strong often is the main focus of a firm and its people.  After all, there is nothing like a good year to set the tone for the upcoming campaign.

Concluding one year with hopes for the next one can seem routine.  For some firms, accepting a business as usual outlook about the coming year can be the wrong attitude.  Rather, in these times of law firm growth, consolidation and succession, thinking about alternative strategies, not just the routine, is worth considering.  One alternative more firms find themselves considering is the idea of merger.

Indeed, as the year is wrapping up there are at least five reasons law firms should think about merger.  Not all five reasons need to exist to compel thoughts about merger, and even if all five exist, a merger is not necessarily ordained. Many factors may cause leadership to conclude that merger is not for their firm.

Nonetheless, as one year ends there are five good reasons to think about pursuing a merger in the next one.  While their presence should not always dictate action, their existence should get the thought juices flowing:

Succession.  A firm may have a great year in 2017 but one year’s nice performance says nothing about whether the firm is ready for the future.  A firm constantly should ask whether it is adequately prepared for succession.  Are leadership successors identified?  Do key client relationships have younger attorneys to whom those relationships can be transitioned?  If the answer to both questions is equivocal, and time has slipped away for a multi-year succession initiative, the firm may want to consider merger in 2018 as a succession alternative.

Recruiting.  The lifeblood of any firm is its talent.  Good talent yields good legal work which typically improves financial results.  A firm with prospects for the future is constantly replenishing its talent, and in turn, improving its current and future financial health.  Any weakness in recruiting talent should be a concern.  When good law students eschew your firm and choice laterals will not give you a look, the firm should ask whether merging with a better platform will improve its talent prospects.  Without talent or the ability to recruit it, it will be tough to compete over the long run.

Market Presence.  With law firm growth into new markets a constant, a firm should assess whether its market stature has risen, kept pace, or fallen in recent years.  A firm seeing its relative rank slide backwards might need a better platform to arrest any decline.  A firm’s competitors, either carpetbaggers or long-term fixtures, will not stand still.  A firm that does not have the capital or the time to reverse a downward trending competitive imbalance might think about merger.

Opportunity Based Attrition.  Unwanted attrition is a concern for any firm.  Attrition caused by attorneys sensing greater professional opportunities elsewhere can be concerning, especially if repetitive.  Attorney belief that their existing firm does not provide an exciting career path is hard to overcome.  If professional-opportunity based attrition has been steady, a strategic merger may inject a new sense of excitement and stop the losses.

Upward Tick in Firm Performance.  Even if none of the prior four circumstances are a concern now, they may emerge over time.  A firm that has finished its year on a strong note but foresees a time when changing circumstances (like the four identified above) will force it into transition may want to consider merger sooner than later. If so, negotiating a merger now after having enjoyed a strong year could be preferable to waiting until firm weakness makes negotiations difficult.

The hurly burly of year-end can deprive leadership of a needed long-term vision.  Leadership with the right perspective will think about the big picture.  That thinking can encourage assessing the wisdom of merger.  Will your firm’s leaders think beyond 2017 as the year ends?

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