As every new year begins, the idea of law firm merger grabs the attention of more than a few law firm leaders. Although the pandemic impacted the number of law firm mergers closed in 2020, all indications for 2021 suggests a strong merger season. It is no wonder as a well-constructed merger is an effective tactic to achieve strategic goals.
Law firm leaders doing their first merger often ask, “how does a merger come together?” While all transactions have their unique aspects, virtually all mergers involve four distinct phases that are interrelated and build on each other. Poor analytics and execution in any one of the phases can undermine the prospects for success. However, with the exercise of care and good judgment consistently applied through each phase, a merger can deliver the original strategic goals that drove the idea of merger in the first place.
When contemplating merger, understanding these four phases and how they relate to each other is critical.
Phase One-Understanding the Reason for 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 that the combination will add market share not easily gained through organic growth. Merger can also address leadership or succession issues. Whatever the impetus, the decision to consider merger should premised on meeting a strategic initiative identified through thoughtful and critical analysis. If a clear strategic goal is not apparent, stop.
Phase Two-Understanding the Important Criteria. In Phase Two, it is essential that the criteria for merger be identified before seeking a mate. Only once the criteria are clear should a firm pursue candidates-all the while remaining faithful to the identified criteria. Whether acting opportunistically or methodically, staying true to the criteria prevents the thrill of the chase from distorting tactics. It also provides the discipline needed to walk away from a bad deal that momentum would have you close otherwise. If the criteria are unclear, or a candidate fails to meet strategically identified “must haves,” then slow down or don’t go forward.
Phase Three-Zeroing in on the Right Merger Partner. When getting to the stage of evaluating prospects, a well-designed process turns to 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. The fit of leadership styles and the potential for future leaders that can guide a unified firm also needs attention. Do the two firms have a similar vision for the future? While compatibility need not be perfect, a pass is best for any combination with too many misfits.
Phase Four-Making the Combination Work. While it is essential that the integration and blending of the two firms be planned before closing, execution post-merger with an attention to detail are vital to bringing two disparate firms together as one. Forging a singular culture and creating systems, processes and procedures universally applied will establish the new firm’s valued behaviors. Hard work post-closing is not only important to avoiding crisis during the next honeymoon period, but also important to building the next generation of leaders and performers.
Success in law firm merger takes work. Working through the four phases carefully and methodically, with purpose and commitment, helps dramatically. If you are thinking merger, will you keep these four stages in mind?