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Category: Merger

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Dec 08, 2015

Law Firm Merger – How Do Firms Handle Integration of Assets

Question:

I am the managing partner of our six attorney civil litigation firm in Lexington, Kentucky. We are in the early stages of merger discussions with a fourteen attorney firm in Lexington. My partners have asked me how other firms integrate their assets when the merger become effective.  We would appreciate your thoughts?

Response:

A variety of approaches are often taken in upstream mergers.

One approach is to transfer all of the assets and liabilities to the other firm and receive a credit to your capital accounts for the value of the contributed assets/liabilities with a check from the other firm if the value of the assets contributed exceed the required capital contribution based upon the ownership shares that you are being offered in the merged firm.

The more common approach that I see taken in upstream mergers is for the smaller firm to retain the firm cash accounts, accounts receivable, work in process, and sell the fixed assets (furniture and equipment) to the other firm for cash or receive a capital account credit for the value of the fixed assets contributed. If additional capital is required, each partner would write a check to the merged firm for their capital contributions. Your existing firm would be responsible billing out old work in process and collecting old receivables and when the income is received these funds would be deposited in your existing bank accounts and entered in your old books. You firm would also be responsible for accounts payable and other liabilities that exit prior to the merger.

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

 

 

Apr 28, 2015

Law Firm Merger – Finding Merger Candidates

Question:

I am the managing partner of a 14 attorney firm in Los Angeles. We are primarily a transactional practice and we are considering looking for a litigation firm to merge with our firm. I would appreciate your thoughts on locating merger candidates.

Response:

For larger firms that have a talent or book of business void or solo practitioner and sole owners’ merger is often an appropriate strategy and approach. It all comes down to the finding the right firm, the right culture, and the right fit. The search process can take time as we.Here are some suggestions to help get the search process started.

  1. Using the Internet and Google, start by thinking about possible target law firm candidates;
  2. Prepare a merger candidate short list based upon firms that your firm has worked with or have had contact; 
  3. Prepare a merger candidate short list based upon firms that your firm is aware of but have not worked with nor had any contact – cold leads;
  4. Decide on an initial contact strategy for each target firm and who in your firm will initiate contact;
  5. Begin contacting target firm and setting up initial meetings;
  6. Maintain and constant and consistent flow with prospective merger candidates rather than fits-and-starts;
  7. Work toward a specified target goal and maintain a timeline to avoid project drift;
  8. If your firm is unable to maintain a constant and consistent flow consider outside assistance;and
  9. If your firm is unable to identify suitable target candidates, consider some advertising vehicles such as Craigslist, Law Schools, Bar Association, Legal Publishers, Monster.com, Local Newspapers – print and online, and legal recruiting firms. 

My experience has been that for small law firms the most successful approach for locating merger candidates has been developing the short list and looking in their own backyard. However, other approaches, including advertising, have worked as well. If the firm decides to use advertising, the firm may want to keep from divulging the firm name too early in the process.

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

 


 

 

 

Mar 12, 2015

Law Firm Merger Preliminaries

Question:

Our firm is a 17 attorney firm in Dayton, Ohio. Several of our founding partners are retiring and we have been contemplating exploring a merger with another law firm but are not sure where to start. I would appreciate your ideas.

Response:

Start by determining your merger objectives. Why do you want to merge? What do you hope to achieve? Is merger compatible with your strategic plan? What size of firm are you considering?

Once you are sure that merger exploration – in general – makes sense – you should insure that your house is in order. In other words – can anything be done to enhance the value and/or marketability of your firm? For example:

  1. Do you have a business or strategic plan? If not – how will you convince a potential merger partner that you have a plan for the future and know where you are going? Maybe now is a good time to work on that plan. 
  2. Work on and clean up your financials. Improve the financial performance of your practice. Eliminate deadwood. Write-off uncollectable A/R and WIP. 
  3. Avoid entering into long term commitments that might make your firm undesirable to another firm. (new long term leases, risky client matters/cases, loans, admission of new partners, unfunded partner buyouts/retirements, etc. 
  4. Enhance firm image where you can. 
  5. Develop a first class firm profile.

Next, develop a merger marketing plan and begin working the plan. Try to generate enough leads that you can explore merger with several firms rather than engaging in "random merger talks" which often result in isolated merger offers with you having no framework for comparison.

Use an outside consulting firm if you need help organizing, identifying candidates, and managing the process.

Once you have merger candidates identified – the real work begins.

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

 

May 27, 2014

Law Firm Merger – Merger of a Solo with a Two Attorney Firm

Question:

I am a solo in Bloomington, Illinois. I have just completed my third year in solo practice. I have one full time secretary, a paralegal, and I office share with a group of attorneys. My overload is low and my margin is 61%. I have been approached by a two attorney (2 partners) firm regarding merging with their firm. One of the partners is relatively new (joined the firm 3 years ago) and the other is the firm founder and is planning on retiring in the next year. On average the other firm's revenue per attorney and partner earnings is on par or even less than mine. Their overhead is much higher. The two partners have been operating on a handshake with no succession/transition plan for the senior partner and no understanding of retirement financial arrangements (buy-out). While I have some concerns and fears about merging I believe that merger would provide me access to mentoring, additional resources and staff, and ability to improve my competencies and handle larger more complex cases. I would appreciate your thoughts.

Response:

I would be concerned that you have been approached to help with the buy-out of the senior partner. In essence this may be a large unfunded liability that you and the other partner will be saddled with for a number of years. It sounds like, based upon past performance of the other firm, that if there is a substantial buy-out of the senior partner you could end up making less for several years. Other than your rent there will be marginal cost savings as a result of the merger. Improvement in your earnings will be dependent whether you and the other partner can in fact generate larger cases, larger revenues, and increased leverage. 

If I were you I would ask the firm to work out the details concerning the senior partner's retirement as to timeline, the mechanics, the cost/funding of the buy-out, and put same in writing. Once this is accomplished factor this into the rest of your due diligence and analysis.

If the firm is unable to get their arms around the retirement of the senior partner issue I would stay clear.

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

 

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