Law firm merger is popular because, among other things, it can help a firm grab greater market share, enter new markets, bolster capabilities, or address succession challenges. These results or outcomes can compel a firm to pursue merger enthusiastically. Unfortunately, mergers don’t always guaranty success and in some cases can undermine a firm’s stability. To be successful in merger, a smart law firm takes a careful and disciplined approach.
Law firm leadership considering merger should keep five key elements in mind to maintain needed discipline. By making its pursuit of merger touch upon these five fundamentals, a management team positions its firm for success. These fundamentals are:
Approach Merger with a Non-merger Strategy in Mind. Merger is not an end into itself. Rather, the tactic of merger should serve a distinct firm strategy that is advanced by merger. The firm strategy may pertain to growing the firm’s substantive capabilities, building out existing expertise or adding market share in areas the firm already competes. But a merger not based on furthering a non-merger strategy is a hollow exercise, and one that is best avoided. For this reason, firm leadership should clearly identify the firm’s strategy that is served by merger before embarking on the idea of merger.
Look for a Combination that Serves the Non-merger Strategy. Once it is decided to further a firm strategy through the tactic of merger, it is only logical to confine the search for a merger candidate that fulfills the firm’s objectives. For that reason, the firm should establish the essential characteristics of any potential merger candidate. As the process goes on, many potential merger candidates presented may be bright and shiny, but do not have the characteristics previously identified. A disciplined firm is not swayed by otherwise exciting firms willing to merge if the essential elements needed for the firm’s strategy are lacking.
Only Pursue Compatible Firms. Believe it or not, a merger candidate may meet all the strategic criteria but can still be a horrible choice. Once a potential merger candidate shows that it meets the firm’s strategic imperatives, its compatibility must be carefully examined. Determining whether a firm is compatible often requires focusing on five compatibility metrics: culture, finances, clients, compensation, and operations. Upon testing those metrics for the two potential marriage partners, the compatibility of the two firms will become clearer. If compatibility is not present, it is best to continue looking.
Make Integration a High Priority. As hard as it can be to put a merger together and get to the closing table, it can be even harder to integrate the two firms once closing occurs. Disciplined firms in the merger game thoroughly consider the idea of integration, map out steps to a successful integration, and discuss it with their merger partner-before closing. If prior to merger the integration of the two firms looks to be too difficult, passing on the proposed merger may be advisable.
Be Selective. Because merger discussions can be time consuming and create an excitement about the future, momentum in favor of merger sometimes can prove overwhelming. Letting deal fever force a merger is unsound. Rather, any proposed merger, should be compelling for a firm to say “yes.” If the match does not meet that standard, it is best that leadership step away from negotiations and wait until a suitable combination can be found. Waiting for the right merger is not failure, it just means that further work needs to be done.
Merger for the sake of merger should not guide a firm. Instead, being disciplined when pursuing merger is a recipe for a good outcome. Are there other important steps your firm has followed in its mergers?