Law firm growth gets a lot of attention. Among the various approaches to law firm growth is the tactic of merger. Almost weekly we are treated to another announcement about two law firms fulfilling their desire to grow by combining. And although law firm mergers have been part of the landscape for years, since the Great Recession the incidence of law firm growth through merger has become more commonplace.
Generally, until the merger itself is announced little is publicized about a law firm’s merger activity. Even in the instances in which a law firm’s interest in a merger is leaked before the merger is a done deal, details about the merger mechanics are scant. The leaked news usually only stokes a rumor and a closed deal may or may not result.
For firms that have not done a merger the question often asked is “how does a merger come together?” While the genesis for each transaction is unique (as are the negotiations), virtually all mergers involve four distinct stages that are interrelated and build on each other. Performed well and a merger is positioned for success. Performed poorly and a merger’s prospects are suspect. The four key stages are:
Stage One-Deciding to Pursue Merger. The reasons behind a firm’s decision to pursue a merger can be many. Some firms need a rescue; others see a need for additional capabilities or have a desire to enter a new and critical market. A frequent reason to merge is one premised on the combination adding market share not easily gained through organic growth. As the Boomer generation reaches retirement, merger also can be a useful tactic to address leadership or succession issues. Whatever the impetus, the decision to consider merger should be one premised on meeting a strategic initiative identified through thoughtful and critical analysis.
Stage Two-Establishing Your Requirements. In Phase Two, it is essential that the criteria for a merger be clearly identified before seeking out a potential merger partner. Only once the criteria are established should a firm purse candidates-all the while remaining faithful to its criteria. Whether acting opportunistically or methodically, staying true to the criteria protects a firm from letting the thrill of the conquest dictate its tactics. It also provides the foundation for the discipline needed to walk away from a bad deal that momentum would have you close otherwise. Understood criteria and discipline prevent emotional or irrational decisions. They should not be compromised.
Stage Three-Finding a Match that is Compatible. For firms approaching merger correctly, a thorough diligence process provides guidance on firm compatibility. In this phase, a firm should consider whether it and its prospect are compatible on matters of culture, finances, compensation systems, clients and operations. Also key is the fit of leadership styles and the potential for evolving to a leadership team that will be accepted by people in the unified firm. Ideas on succession and vision should be compared to further confirm the fit.
Stage Four-Making the Combination Work. While it is essential that the integration and assimilation of the two firms be planned before the merger is finalized, also essential are an attention to detail and a dedication to bringing together disparate groups post-merger. Everything from forging a singular culture to creating systems, processes and procedures to gauge, motivate and reward the new firm’s valued behaviors. Hard work post closing is not only important to avoiding crisis during the honeymoon period, but it also is important to the care and feeding of the next generation of performers and leaders.
Doing the right merger and finding the right partner takes work. It does not come about by happenstance but requires an unyielding focus at critical points along the way. Has your merger experience shown you other important steps?