Merger is a frequent law firm activity, especially in recent years. Based on a recent review of Altman Weil’s MergerLine, over 600 mergers and acquisitions have closed since 2007. While not all the deals identified by MergerLine have been true mergers, many of the “non-mergers” nonetheless have been significant because they represent the near full unification of two going concerns. For about a decade then, the law firm industry has seen many combinations where two law firms come together and “merge” to be one.
At the 23rd Annual Law Firm Marketing Partner Forum held earlier in the year in Orlando, Florida a panel of seasoned law firm leaders discussed the topic of merger and their experiences with the merger process. Among the take-away’s were that three common themes impact whether merger participants enjoy success or disappointment.
In summary, the panelists generally agreed that any decision to pursue merger must be driven by an underlying strategy that is not the idea of merger itself. The importance of culture to the merger process also was noted, as was the importance of working hard on integrating the merged firms and their practices once a deal closes. Of the three themes mentioned, however, joining with the right culture was deemed “paramount’ to achieving success.
For the firm thinking that merger may be in its future, the warning about culture can’t be shrugged off. But what did the panel mean with its admonishment about focusing on culture? After all, “culture” seems to have a “squishy” quality that begs for something more concrete. Tangible indicia of suitability can come from comparing the following six areas of day-to-day law firm life:
Profession or Business? Today most firms acknowledge the importance of operating as a business but beyond that unanimity there can be widely divergent approaches. A firm’s unyielding dedication to business principles may be tough to swallow for another firm that has been slowly moving from a “law as a profession” philosophy to a more business-like outlook.
Money or Lifestyle? For some lawyers and their firms, making as much money as possible are reasons one, two and three for having their firm at all. For another firm that values a comfortable living while enjoying an equally satisfying quality of life, joining others seeking the last penny of every dollar could be an intolerable transition.
Compensation System and Behaviors? One firm’s approach to doling out compensation can be very different from the next firm. The incongruity of two compensation systems can suggest a poor fit. But the bad fit can go beyond the technical process of evaluating and rewarding performance. Compensation systems inevitably encourage behavior. Bringing together two groups of lawyers whose compensation system behavior could not be more different can compound an already formidable challenge.
Non-monetary Values? There is no right or wrong answer to whether a firm should be civic and profession minded or not. The law firm industry has more than enough room for firms of either bent. That said, two firms at opposite ends of the non-monetary value spectrum might prefer to remain apart.
Treating People? How a firm’s people (professional and non-professional) are treated says a lot about a firm. Lawyers or other personnel currently at a “people place” may find life at a more cutthroat shop impossible to accept. In any merger, the human resources equation must be solved.
Lone Rangers or Teammates? A teaming atmosphere can be dramatically different from a place where being helpful is neither expected nor rewarded. If a merger will bring together lawyers not on the same page about the concept of teamwork, inefficiencies and resentment will mount to the detriment of the merged firm.
There is no arguing that many a prospective merger can stall for non-cultural reasons. But the importance of a cultural fit cannot be discounted. If two firms thinking about combining are different in many of these six areas of day-to-day life, the two cultures may not be aligned. If you were considering a merger and many of these day-to-day characteristics of the firms weren’t matching, would you go forward?