In the case of many law firms competing in today’s legal environment, growth is important. Some growth is done quietly while other expansion is discussed widely. Growth in the form of law firm merger gets everyone’s attention-indeed announcements about law firms joining together in merger seem to be made weekly.
For every merger announced there are many others that don’t make and go quietly into the night. Most failing efforts can be traced to the numerous factors that make merger so complex. Make no mistake, mergers are complicated and sometimes difficult. When law firms are inexperienced in merger, the idea of merger can seem daunting and leaves the novice firm unsure how to make a merger work.
While all mergers and their negotiations are unique, virtually all mergers go through four distinct steps that help determine whether merger will succeed. Within these four steps, law firm leadership must exercise discipline to assure that each step is carefully vetted and examined before moving to the next step. A lack of discipline, or moving prematurely onto the next step due to excitement or deal fever, can lead to a risky merger. Performed with discipline, however, and these four steps can improve a law firm’s chances in the merger game. The four important steps are:
Making an Informed Decision About Merger. Even though merger can be transformative for a law firm, thinking that merger can be a panacea for various ills is unsound. Thoughtful reflection is required. There must be a clearly articulated business reason to consider the tactic of merger. Some firms look to merger to provide a rescue, others need additional capabilities or have identified another geographic market with promise. The adding of market share in a single boost may be needed because organic growth is too slow. Merger also can be succession tool as existing leadership or business generators are reaching the end of the road. Making an informed decision on whether to pursue merger must be premised on a thorough analysis about a firm’s business objectives. If that rationale is missing, merger is not a tactic to pursue.
Identifying the Important Criteria. Once merger is accepted as a possible tactic to implement the firm’s business imperative, the criteria for a potential merger partner must be identified. Pursuit of a merger candidate should not begin until the criteria are settled. Moreover, once the important features of a potential merger target are established, any search for a merger candidate must be strictly faithful to the criteria selected. Discipline in searching for the merger partner meeting these characteristics also means being willing to walk away from a potential deal if the criteria don’t match up. By staying true to its criteria, the firm will avoid making emotional and irrational decisions.
Testing Every Prospect for Compatibility. Even a prospect that meets a firm’s search criteria might be a poor fit if the two firms are not compatible. Here, firms should test in a disciplined way whether compatibility exists on matters of culture, finances, compensation systems, clients and operations. Compatibility in leadership styles, succession planning and vision should also be tested. If compatibility is wanting in too many of these important areas, the merger should be avoided.
Blending the Two Firms Together. While the firms are still talking and before the deal is sealed, it is essential that both firms get together and develop conceptual plans for the assimilation and integration of the two firms. If preliminary talks reveal that integration will be difficult, it is a warning sign that more work needs to be done. And once the deal has closed, the unified firm must take the conceptual plans and develop them further with sufficient detail to bring together disparate groups to make the firm one. Included in this process is the need to build a single culture, create processes and procedures to gauge, motivate and reward the performance that leadership expects from the firm’s personnel, and look to the future.
Merger is a lot more than just finding a firm that is interested in joining yours. To make a merger work, exercising the discipline to implement these four steps is critical. Can you think of other similarly important steps?