Law firm growth through merger has been popular in recent years and does not appear to be abating. Each consummated marriage had its reasons, ranging from client centered, substantively compelling or geographically helpful. Some combinations proved quite successful, others moderately so, while a few could be judged as failures.
Deciding whether to combine law firms requires intense analysis that will be dictated by the situation. Besides the usual metrics of revenues, expenses, headcount, practice expansion and the like, law firm leaders face more intangible issues, such as whether disparate practices can coexist, whether some clients’ incompatibility precludes their being served under one banner, or whether strong personalities can get along. These issues can be tough to resolve and it takes a great deal of work to sort through them successfully.
Other issues are not so tough to assess. In fact, there are certain issues, Danger Signs if you will, that augur against any combination if they cannot be resolved with adequate certainty and confidence. If these Danger Signs exist, be prepared to run away from the combination.
If You Don’t Know How You Will Integrate the Firms, Don’t Combine Them. One of the most difficult tasks in trying to make two law firms or practices come together successfully is how they will live together. Different systems, philosophies, core values and strategies can’t wait to be resolved later. If you don’t know how you will work out these issues, you should not combine. Even worse, if you have not taken the time to identify the issues, you are not close to being ready to combine.
Recognize that “Culture” Is More Than a Word or Platitude. Law firms often describe their culture in reverential tones that connote a gratefulness that it is not like the other firms. The “other firm” likely feels the same way. No one firm culture is the best any more than one expensive golf putter is better than another. But understanding the cultures of the two firms walking down the isle is vitally important, and if you don’t know how the two cultures will mesh, turn around and walk back out of the church.
Review Prior Lateral Growth of Your Target. If your target has grown recently through significant lateral acquisitions, be wary. Most laterals arrive with a book of business that is easily re-packaged and moved to another firm. If you are counting on a lot of that laterally acquired business staying, you may be disappointed.
Shun Any Combination in Which a Party “Needs” to do the Deal. We all like a good deal-that is our nature. But if a potential combination candidate seems desperate to do a deal with you, there likely are fundamental problems under the surface that have put it in such straits. It is a little like buying a used car from the salesman that won’t let you leave the lot without making a deal. At the time of sale he knows something you don’t. Weeks later, when your clunker won’t start, you know.
The Firm You Are Courting Uses the Word Synergy A Lot. Synergy is a good thing, but it is best when it comes about organically and is not offered as a prediction of the future. A good combination is one where the joining firms contribute strength to add to already exisitng presence and dominance. A merger where underperforming groups are anticipated to receive a boost due to compatibility with their counterparts is relying on synergy. A belief that synergies make the merger compelling generally is not well founded.
Rate Structures and Practice Sophistication Are Dissimilar. “Once we started talking, we were surprised at how similar our firms were.” If the press release is not “merger-speak” and management of the two potential merger candidates truly believe such a statement because it is true, a merger may be beneficial. But if the gulf between the two firms’ rate structures and practice sophistication is substantial, compatibility is suspect and integration issues will be significant.
There is too much at stake to combine law firms when Danger Signs about the combination are obvious. Common sense should steer you away from many combinations. For those possibilities that remain, in depth analysis should provide the kind of guidance needed to avoid mistakes and make a successful combination possible.
What other Danger Signs are out there? How do you work through them?