Don’t just merge. Plan. Think. Then act…

Merger might be the right answer. But have you planned for the right outcome?…

By almost any measure, 2012 was a record year for law firm mergers. A report from Jomati Consultants confirms a 24% year on year rise in merger activity by the top 100 law firms in the UK. That report chimes with one released mid-2012, which showed that almost a quarter of small and medium-sized firms were thinking along the same lines. This report confirms that 62% of firms with over 10 partners thought a merger likely within a year.  A more pessimistic – or realistic – 27% of firms below 10 partners think that a merger is on the cards.

But are firms merging for the right reasons? If talks focus on real strategic considerations, rather than just ‘ports in a storm’, and bring in true reviews of culture, finances and market capabilities, then the mergers stand a better chance of success.

The challenge is to make the merger work in a very practical sense.  How  do you make sure that the merged firm is better than the two separate entities, and that both parties benefit?

We’ve compiled a list for you to think about when planning your future:

  1. Keep in mind why you wanted to merge in the first place. Many mergers lose focus on the bigger picture when the operational and people issues become difficult, and forget the why. Strategy meanders, and people and partners become disillusioned
  2. Plan the project and its management. Make sure you have senior people focusing on the mechanics; and others focusing on the merged business  and the reasons for merger. When the same people are in charge of both aspects, means and ends can get confused, and tasks become more important than people or strategy
  3. Plan your leadership and its future succession. It’s often thought easier to share leadership responsibilities amongst several partners, perhaps even democratically ensuring equal representation for each firm. Leadership needs the best people. Only
  4. Communicate, communicate, communicate. There are different communities, stakeholders, practice groups, partners – all of whom need to be kept informed.  Communications plans should be in place early; perhaps even before Heads of Terms are agreed
  5. Client management is critical. Identify the importance of existing clients and markets to the new venture. If existing clients account for less than 80%of the new venture’s revenue budgets, fundamental questions need to be asked about the strategic purpose of the merger. Plans need to be in place for each category of client– some will be more important and some need more consideration. Plan for their management – before other firms talk to them while you are busy merging…
  6. Talent management secures the future. Whilst mergers can be very good news for some careers, many – including partners – will view the merger as a threat. More talented people will be vulnerable to other firms’ attention. An effective people plan can reduce, but not eliminate, the likelihood that people will leave. Plan for unexpected losses
  7. Operations management should provide cost efficiencies. Cost-cutting is always seen as a key reason for merging. More partners and fee earners do not always mean more support staff. And merged firms will not need two managers in certain support areas, although some assistance might be required in the merger period. Clear selection criteria and effective communications are key elements of a successful transition
  8. Process improvements are often likely. Legal Project Management and Process Improvements are two increasingly important factors as firms seek to identify savings and controls to cope with increasing client demands and otherwise increasing costs. They are of course vitally important in increasing the likelihood that the new firm will benefit from good practice
  9. Don’t forget the finance. Firms who focus senior partner attention on the merger without paying attention to finances and revenues, can lose momentum just at the time when income is even more important. Forecasting, budgeting and lock-up remain vital for law firms and merged entities
  10. Cash is king. Although many mergers forecast cash savings, it is in fact likely that cash requirements increase during the first weeks and months of a merger. Transactions costs; redundancies and retired partners; rebranding; systems and redundant premises and leases will all cost – and mostly before the expected increased revenues arise. Even if some of the expenses are capitalised so that the impact on profits can be smoothed over a number of years, more cash will be needed in those initial phases.

Research shows that 70% of mergers fail because of poor planning and execution. We’d be very happy to talk to you about how to improve your chances of success. After all, you won’t merge very often…

Please send us an email, or call us – we’d be delighted to have a no-obligation conversation with you.

John Wade

John Wade

Contact John
t. 07815 889790