Law Practice Management Asked and Answered Blog

Category: Law firm mergers

Feb 18, 2014

Law Firm Merger – Should We Merge

Question:

Our firm is a 16 attorney insurance defense firm in Central Illinois. We have 8 partners and 8 associates. We are in second generation, have inherited our existing clients from the original founders, and currently have no rainmakers. We need to bring some rainmakers into our partner ranks and have been discussing the possibility of merger. I would appreciate your thoughts.

Response:

While mergers can be a valid option making them work is often another matter. Research indicates that one third to one half of all mergers fail to meet expectations due to cultural misalignment and personnel problems. Don't try to use a merger or acquisition as a life raft, for the wrong reasons and as your sole strategy. Successful mergers are based upon a sound integrated business strategy that creates synergy and a combined firm that produces greater client value than either firm can produced alone.

There can be a whole list of reasons for failure including poor financial performance, attorney defections, loss of key clients, and leadership and management issues. However, it has been our experience that most failures have been the result of poor cultural fit. The merging firms – after they have moved past conflict checks and excitement about new client potential – jump immediately to an examination of practice economics and the financials. They fail to perform proper due diligence on the people. It is critical that firms insure that cultural due diligence is a key component of the merger assessment process. Philosophies, personalities, and life styles should be generally compatible. The partners should like each other and the deal should make sense.

The question is not the what (merge) but the who (people).

I would suggest that you consider a lateral strategy as well as a merger strategy and let the WHO and right fit direct your thought process. Also insure that you have fully explored whether you have really developed the business development potential of the partners you have now.

Click here for our blog on mergers

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

Aug 06, 2013

Are We a Suitable Candidate for a Traditional Law Firm Merger?

Question:

Our firm is a 22 attorney firm located in Pittsburgh. While we represent both individuals and businesses our focus is on small business representation. During the past few years we have come upon hard times. We have lost several partners and a couple of business clients and we have a few partners coming up for retirement over the next few years. Several of our senior partners have suggested that we might be a merger candidate for a large law firm. What are your thoughts?

Response:

Don't count on a larger law firm coming to your rescue unless:

  1. You have a practice that is strategically important to the larger firm (all practice areas).
  2. You have an exceptional bench of superior lawyer talent with mixed age spread.
  3. Your firm has had exceptional financial performance and on a par with the larger firm.
  4. Your billing rates, methods, and practices are on a par with the larger firm.
  5. Your partner earnings are on a par with the larger firm.

Unless the above ingredients are in place the firm may not be a suitable candidate for merger or it might find that the larger firm cherry picks some of the key partners off one by one.

Click here for our blog on mergers

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

May 21, 2013

Law Firm Mergers: The Importance of a Timeline and Project Plan

Question:

Our firm is a 4 attorney firm in Columbus, Ohio. Three of our partners are in their 60s and contemplating their exit strategies. We have a very profitable high profile practice and have been approached by a couple of very large firms concerning possible merger. We believe that this would be our best exit strategy. What mistakes have you seen other firms similar to ours make that we should avoid?

Response:

Mistakes can run the  gambit – from choosing the wrong marriage partner – to getting into a deal that does not make business sense. A common problem that I have sees is the lack of a timeline and project plan resulting in project drift and lost time. I just got involved with a small firm that had been working with the managing partner and a small team from a much larger firm. After a few months of  financial and other document exchange, informal gatherings, etc., these individuals advised the partners in the small firm that they believed all looked good and led the partners in the small firm to believe that a deal with eminent. However, after one year had passed the small team in the larger firm presented the matter to the full partnership for a vote on the merger and the partnership voted against the merger.

Lessons Learned

  1. Don't assume that the managing partner or a small merger committee or team in a larger firm speaks for the firm or has the authority to approve a merger. Merger with another firm or extending partnership are usually decisions restricted to partnership vote in most firms.
  2. The partnership dynamics in larger firms will always be a variable and in larger firms a great deal of time is often required for this to play out.
  3. It is critical that you establish your timeline (goal date) and let it be known to the other firms that you are speaking with. Let them know that you are talking with other firms that will have to have a decision by a date certain.
  4. Outline a step-by-step task or project plan based on the goal date to focus your efforts, keep you on target, and reduce project drift.

Don't invest a year with only one firm only to find out that they are not interested.

Click here for our blog on mergers

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

Apr 02, 2013

Law Firm Merger – Where to Start When Merging/Acquiring a Smaller Firm

Question:

Our firm is a 26 attorney firm in Louisville, Kentucky. We are considering merging/acquiring a 12 attorney firm in the local area. This is virgin territory for us as we have not done this before. We would be interested in your thoughts as to where we should start and the process we should use to minimize the risk of making a mistake.

Response:

While mergers can be a valid option making them work is often another matter. Research indicates that one third to one half of all mergers fail to meet expectations due to cultural misalignment and personnel problems. Don’t try to use a merger or acquisition as a life raft, for the wrong reasons and as your sole strategy. Successful mergers are based upon a sound integrated business strategy that creates synergy and a combined firm that produces greater client value than either firm can produced alone.

There can be a whole list of reasons for failure including poor financial performance, attorney defections, loss of key clients, and leadership and management issues. However, it has been our experience that most failures have been the result of poor cultural fit. The merging firms – after they have moved past conflict checks and excitement about new client potential – jump immediately to an examination of practice economics and the financials. They fail to perform proper due diligence on the people. It is critical that firms insure that cultural due diligence is a key component of the merger assessment process. Philosophies, personalities, and life styles should be generally compatible. The partners should like each other and the deal should make sense.

The question is not the what (merge) but the who (people)

You should do all the due diligence that you can – start with the people – then move through the rest of the process.

Click here for our blog on mergers

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

Nov 16, 2011

Contemplating Merging with Another Law Firm

 

Question:

We are a 15 attorney estate planning firm just outside of New York City. Ten years ago we had 37 lawyers in the firm. We have had several defections due to internal management problems pertaining to structure and compensation. We have operated more as a group of solo practitioners than as a true law firm. Recently we have considered the option of merging with a larger firm. What are your thought regarding the pros and cons of doing this?

Response:

Research indicates that 1/3 to 1/2 of all mergers fail to meet expectations due to cultural misalignment and personnel problems. Don't try to use a merger or acquisition as a life raft, for the wrong reasons and as your sole strategy. Successful mergers are based upon a sound integrated business strategy that creates synergy and a combined firm that produces greater client value than either firm can produced alone. Right reasons for merging might include:

a. Improve the firm's competitive position. .Increase specialization – obtain additional expertise.
b. Expand into other geographic regions.
c. Add new practice areas.
d. Increase or decrease client base.
e. Improve and/or solidify client relationships.

I would start by thinking about your reasons for wanting to merge and your objectives. Ask yourself the following questions?

a. Do you want to practice in a large firm? If not, what is the largest firm that you would want to practice in?
b. What is driving the desire to merge?
c. If the desire to merge is being driven by a desire to retreat from internal problems – what have you done to address these issues internally?
d. Is your name being part of the firm  name important to you?
e. What are your expectations and objectives for a merger?
f. What are you  looking from a merger partner?
 g. Make sure that you look for a complimentary fit. If you are weak in firm leadership, management and administration – look for a firm that is strong in these areas. Strong leadership, management, and administration may be hard to find in a firm under 25 attorneys.

Click here for our blog on mergers

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

Sep 27, 2011

Law Firm Upstream Mergers/Acquisition – Merging With a Larger Firm

Question:

Our firm is a three partner general practice firm in a small community. Our ages are 72, 68, and 64 respectively.  Our firm has not adequately prepared for succession/exit of the partners. We have over the years hired associates but have been unable to keep them – they have all left for greener pastures. We are now contemplating merger with a much larger firm that has 40 plus attorneys. We have had several meetings at the office and we have provided them with our financials. They have not provided us with detailed information. We are getting frustrated. It has been over four months since we began talking with this firm and we seem to be "stuck" and not maintaining momentum. We have other options that we have just begun exploring. How can we get "unstuck" and move this process along?

Response:

Right off the bat – admit that this is not a merger of equals – it is more of an acquisition.  Hopefully, you have discussed firm name, whether your existing office will be retained or closed, and the future roles of each you as well as your staff. These are often deal breakers and many firm merger talks never get past this point.

You really need a project plan – or timeline – for a project like this with due dates and milestones. Otherwise, the process will continue to drift. You need a timeline for this merger candidate as well as other options that you are pursuing. I would contact your contact in the larger firm and agree on a timeline. You might want to ask them to provide you with a proposal within an agreed date – say 30 days and see what they come back with – it could turn out that their partners are not able to come to any consensus – and the merger simply dies.

If the firm does come back to you with a proposal – now it is your turn to do your due diligence. Start with the people – do you like these people and do you believe you would enjoy working with them? You should insist on a few social functions, etc. so you can get a feel for their people. Don't take a shortcut here.  Ask for their financials, personnel rousters, clients lists, partner demographics, list of partners that have retired and are receiving payouts and upcoming retirements in the future.

Insure that you obtain an understanding for the work culture of the firm? Are you compatible? Obtain all the detail that you can about governance and structure, the compensation system and how it works, retirement of partners – whether funded or unfunded, and complete details on the mechanics. How will the merger/acquisition be implemented? Will accounts receivable and work in process be pooled in the new firm – or worked off and collected in the old firm? How many shares etc will you have in the firm? Are ownership shares and compensation shares different?

All of these questions, and many more, need to be addressed in order to decide whether the merger makes sense. If it does and you decide to move ahead – then you and the firm can begin putting a implemention/integration plan together. 

Click here for our blog on succession and retirement

Click here for our law firm management articles

John W. Olmstead, MBA, Ph.D, CMC

Archives

Categories

    Subscribe to our Blog