Improving the Odds in Law Firm Merger

by Hayse LLC
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Law firm mergers remain popular as law firms everywhere seek an edge. Despite the high interest in merger as a difference maker, law firms considering merger need to be careful-merger can be fraught with risk.  Indeed, it is reported that only about half of all law firm mergers succeed.  So not only can a merger not be the panacea envisioned, but it can destabilize a firm in ways not envisioned.

For every firm thinking about merger, Identifying the pathways to success is essential.

What are some of the important considerations for a law firm that wants to improve its odds of having a successful merger?  What should be in a law firm’s plan as it embarks on the journey of merger?  A review of law firm merger successes and failures provides five important fundamentals:

Have a Rational Strategy that a Merger Will Advance.  Merger should be a tactic to further a clear-eyed strategy adopted in an atmosphere free of the pressure to grow.  A firm may perceive a need to improve its substantive capabilities, enhance a burgeoning expertise or grow market share in an area it is known or needs to be known. A firm may need to merge because declining performance augers in favor of a rescue. Or sometimes a need for leadership succession drives a decision to merge.  Whatever the impetus, merger as an option should be based on meeting a strategic imperative identified by the firm before it tactically begins moving on merger.

Establish Clear Requirements and Be Disciplined in Their Pursuit.  Once merger as a tactic towards the strategic goal is chosen, good leadership will pause to identify the important criteria for any prospective partner.  Only after being armed with an articulated set of criteria should a firm enter the market in pursuit of a match.  Even then, a firm should be disciplined to only kick the tires on potential candidates that meet the firm’s earlier identified criteria.  Remaining faithful to the criteria keeps a firm from allowing the thrill of the hunt cloud its judgment.  By staying true to the criteria throughout the process, a firm likely will be more disciplined, unemotional and not swayed by deal momentum.

Make Compatibility Non-negotiable.  Two firms should not be joined in marriage if they are not compatible on multiple dimensions.  How the two firms compare and match on culture, finances, clients, compensation and operations is very important.  A clash in any of these compatibility metrics should signal caution.  Although universal compatibility may be rare to achieve, divergent fits in these five metrics should be kept to a minimum.  A further comparison of leadership styles and an agreement on the blended leadership team are essential.  Finally, respective ideas about succession and a vision for the future should be compared.  Only by engaging in a thorough compatibility diligence process can a firm know whether it should move forward or walk away.

Avoid Thinking that One Plus One Equals Three.  “Synergy” can be code for thinking that an underperforming firm can be hoisted up to a colossus by its more robust merger partner.  The “one plus one equals three” syndrome can happen in the “fog of merger,” but it should be avoided.  Seldom does an underperforming law firm simply need the chance to be a part of a better organization to realize its potential.  If such a match is under consideration, a culling from the herd may be needed to avoid a drain on the merged organization.  If the looks of the prospective merger when a pruning is assumed are not as attractive, the merger may not be right.

Make Integration a Cornerstone of Any Merger.  Integration and assimilation must be part of the negotiating and planning taking place prior to the deal be sealed. Thinking about how groups look and function once joined is essential.  Both before and after the closing the two firms should work steadily to forge a common culture, blend systems, processes and procedures to gauge, motivate and reward the new firm’s valued behaviors.  Post-closing is not the time to relax-it is the time to double the efforts at molding a single firm having a unified purpose.

For law firms considering merger, following these five fundamentals helps avoid missteps.  What other “rules of the road” would you recommend for firms contemplating merger?

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Hayse LLC
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