Law Firm Merger-A Way to Solve the Succession Dilemma

by Hayse LLC

For many law firms, succession to the next generation presents a formidable and daunting challenge.  Leadership may have been too busy to plan ahead for succession.  Turnover at the firm may have dealt a blow to the goal of grooming someone to step in as the next leader.  Sometimes the next generation’s business development abilities may not match the historical performance of the baby boomers now looking to kick back. And even if a thoroughly designed succession plan exists, the competitive legal market may now render it suspect or obsolete.

Unfortunately for law firms, in particular smaller ones, at some point succession can’t wait.  A solution is needed and the luxury of implementing a plan over the coming years is unrealistic.

Law firm merger can provide the perfect solution.  Although many reported mergers are explained as being done to further a larger law firm strategy, merger can serve many purposes.  As a succession tool, merger has proven effective when the option of turning the keys over to the next generation isn’t possible.  These “succession mergers” make sense for a number of reasons.

A firm facing succession often finds the following issues resolved by merger:

Leadership Vacuum.  For some firms, a future generation of leaders just never developed.  Law firm leadership at such firms face the uninviting prospect of turning the reins over to unqualified or uninspiring junior partners.  A merger into a firm with strong leadership can solve that problem.

Continuity.  Existing leadership may be concerned that a traditional succession plan (not involving merger) may not go well, and their firm may stumble and eventually wither away.  The problem with succession is that there are no “do-overs.”  Combining with a larger firm that enjoys a measure of stability may reduce numerous risks and promise continuity.  And that continuity may mean, at least in the mind of the firm’s founders, that the firm lives on.

Post-merger Opportunity.  Even if there is some confidence in the leadership readiness of the smaller firm’s lawyers, baby boomer leadership may believe that a new and larger firm will provide better opportunities for their people for whom fondness remains.    Leadership turning over the reins knowing that they have provided greater opportunities to their people may feel more content.

Good-bye Worry.  It is an overstatement to say that a merger removes worry for the former leaders of the absorbed firm.  But a well-negotiated merger with a strong firm certainly can provide some sense of security to law firm leaders that have fought the good fight for so long without an end in sight.  Leadership in the merged firm will take over the headaches that have long consumed boomer leadership ready to retire.

Benefits.  The merged firm may have a personnel benefit regime that is more generous for the absorbed law firm’s people, including former leadership, than the benefits currently extant at the smaller law firm.  And even if the benefits of both firms are generally similar, the merger still may make a lot of sense.  It is inescapable that a law firm that closes due to a lack of succession planning will not continue to provide its people with benefits they have come to expect.

Although a smaller firm’s leadership may be motivated to merge in order to solve its succession issues, it is not as if the acquiring firm does not benefit.  The existence of firms with succession issues presents to larger firms a market opportunity they may not otherwise have.  In addition to gaining access to skilled lawyers, new clients, and perhaps a new and desired market, the gains for the larger firm from market intelligence and credibility may exceed any that could be obtained by hiring a lateral or two to a de novo office.

These considerations already have been enough to propel some firms into merger.  What about your firm?

Written by:

Hayse LLC

Hayse LLC on:

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