Law firm mergers are a regular occurrence in today’s American legal landscape. Large or small, they happen because law firms and their leaders see merger has meeting a perceived need. Whether seeking greater market share, pursuing untapped lucrative markets, responding to a demographic challenge, or fixing inadequate succession preparations, a merger can represent the right solution. But mergers are neither easy nor assured of success. Indeed, many mergers don’t achieve their desired goals and in some cases, render a firm worse off.
Not all law firms pursue merger with the right level of discipline or knowledge. This can be especially true for law firms embarking on merger for the first time. By being new to this dramatic form of law firm transition, leadership may be uncertain about the process or a tad overwhelmed. Merger as an initiative can seem daunting, especially when leadership thinks about how important it is to get the merger right. In almost every instance, getting the merger right is a function of finding the right merger partner.
How does a law firm find the right merger partner? There are five fundamentals that increase the likelihood of finding the right merger partner, and if followed, improve a law firm’s odds in getting the merger right. The five fundamentals are:
Have a Strategy That a Combination Serves. The most important fundamental when considering merger is to have a strategy that merger serves. The idea that merger itself is a strategy is wrongheaded. Merger should be a tactic to further a firm’s strategy, whether it be a need to add needed substantive abilities, build-out existing specialties, or become more deeply rooted in a client’s business that is growing in a currently unserved market. The merger can be the jump start on the underlying strategy. But merger should not be the strategy itself.
Be Faithful to the Firm’s Strategy in the Search. Upon deciding that merger can implement a firm’s strategy, it is essential that prospective merger candidates have the characteristics that are consonant with the firm’s objectives. Simply put, a firm needs to know what kind of firm it is looking for in a merger candidate and only look at those kinds of firms. It takes discipline to remain faithful to pursuing firms with the identified characteristics, especially when firms attractive in other ways indicate a willingness to merge. Yet an attractive firm missing the elements that further the firm’s strategy is not a suitable candidate for advancing the firm to where it wants to go.
Test Compatibility Thoroughly. When a prospective merger partner appears to meet strategic requirements, it may be far from clear that the right choice has been found. Upon identifying a potential candidate (because it checks most or all the boxes for advancing the underlying strategy), its compatibility needs to be tested. In most instances, compatibility can be assessed by focusing on five compatibility metrics: culture, finances, clients, compensation and operations. If the two firms do not fit well when considering these five metrics, it is advisable to decline the opportunity. Two incompatible firms do not make for a good match no matter how perfect the strategic fit may seem.
Think Beyond the Closing Date. A merger that comes together is a wonderful thing. But the job of making a merger succeed, even ones whose compatibility is evident, requires a great deal of work beyond the courting and closing. Any two firms brought together should invest heavily in integration and assimilation preparations so they become one. In addition, the two firms will need to create systems, processes and procedures that facilitates the uniform treatment of all personnel. Treating everyone alike will encourage consistent behaviors and can go a long way to forging a single culture out of two firms.
Be Ready to Walk Away. Merger discussions are time consuming, can create excitement, and can generate a lot of reasons “to do the deal.” Yet for a merger to be worthwhile it must be compelling. If the match falls short of that standard, it is best that it not be pursued. Despite the momentum towards a deal that makes some of sense, if it does not speak strongly for its consummation then serious consideration should be given to calling it off. Walking away from a deal does not mean failure, it means that the search for the right match continues.
Getting a merger right is a function of finding the right candidate. Following these five fundamentals will guide leadership to the right result. Why make it more complicated?