Critical Considerations for a successful Law Firm Merger
Published for Thomson Reuters Legal Executive Institute on July 14, 2015
Law firm merger activity is heating up. Altman Weil reported last week that the first half of 2015 saw a record number of merger announcements, and told The American Lawyer it looked like the pace would continue into the second half of the year: “We know from our consulting experience that a lot of firms are talking to each other… .”
I have long been a proponent of law firm mergers. They enable a firm to achieve its strategic objectives in ways which are more predictable and more efficient than other options.
That said, achieving a successful merger is very challenging. Most mergers—law firm or otherwise—fail to achieve their objectives. Few are disasters like Dewey & LeBoeuf, but few are true successes either.
Here are five considerations that are vital to a successful law firm merger:
Clear and Concrete Expression of the Merger’s Objectives
A successful merger begins with a clear expression of the reasons for doing it. Why should the firm undertake the cost and risk of merging? What is it trying to achieve? What will success look like?
The statement of objectives needs to be concrete and specific. It will provide a context for evaluating all the planning and execution that will ensue. A firm’s process of adopting the objectives will help build consensus around it, unless the partners don’t support the idea, in which event the firm can avoid a costly and divisive waste of time.
Well-Developed Strategic Plan for the Merged Firm
This consideration is closely related to the first.
Merger is not a strategy; it is a tactic in support of a strategy. Success requires a realistic plan for how the combined firm actually will achieve the objectives of the merger. With which clients will it deepen relationships, and how? In which practice areas and industry sectors will it become more of a market leader, and how? How will it inform and persuade the market of its enhanced value proposition?
Like the statement of objectives, the strategic planning process will both guide and help evaluate merger decisions. Once completed, it will serve as a road map for execution.
Exhaustive Due Diligence
I cannot overstate the importance of due diligence. The firm must exhaustively examine the facts—both on the hard and soft business issues—of the proposed merger partner. Obvious as this point may seem, in hindsight it is clear that some firms have not been as careful they should have been. Dewey & LeBoeuf is Exhibit A, but there are many more examples.
The hard business issues are reasonably straight forward: What are the facts of each firm’s practices, offices, client relationships, financial performance, demographics, et al.? Are they adequate to achieve the merger strategy?
The soft business issues are more subtle: Are these two firms really compatible? Do they share values? Do they see issues like firm governance, strategic planning and partner responsibility in the same way? Each potential merger partner is successful in its own way; is it realistic to expect them to be as successful or even more so together?
Effective Integration Plan
However good a merger may be in concept, it will not succeed unless the constituent firms are successfully integrated. That requires serious planning before the merger is agreed, and much hard work afterward.
The firms should be focused on this from the outset. The merger plan should have a concrete statement of integration milestones for the first 100 days, and for succeeding periods thereafter.
Pragmatic Plan to Seize the Economies of Scale
All mergers have the potential to achieve economies of scale. The economies do not occur automatically, however. In fact, in the context of a law firm merger, seizing them often requires management actions that are sometimes uncomfortable and not in keeping with past practices.
Firms should focus on seizing economies early in the process. Where are the redundancies? Where are the synergies? How will the firm make the most of them? How will it provide for those who will be disadvantaged by the changes that are made?
As do the earlier planning elements, this one will also help the firm decide whether it really can do what it takes to make the merger successful.