Can Firms Merge More Effectively?

Aderant Think Tank

Can Firms Merge More Effectively?

Hardly a week goes by where news of a big merger, or at least rumors of a merger, doesn’t shake the legal world. Last month featured the merger of Squire Sanders with Patton Boggs to form “Squire Patton Boggs”. According to the Am Law Daily the combined firm will cover 53 cities worldwide with 1,550 lawyers, making it the 21st-largest firm worldwide.

I’m not at all surprised by this trend. The natural reaction of firms faced with stagnating revenues has been to consolidate through mergers, and this trend shows no signs of slowing down. The 2014 Report on the State of the Legal Market noted that “by early December, 2013, the number of reported mergers involving U.S. law firms (91) had already surpassed the previous record (70) set in 2008, and it was widely expected that the year-end total would be even higher.”

The prospect of growth in the international legal markets is a big driving force behind the current merger wave. Just this month The New York Times Dealbook reported that “The new mega-firms are focusing on garnering business outside the United States.” They noted that firms like Baker & McKenzie and Hogan Lovells are opening or expanding practices in Africa, while others are looking to expand in Latin America, South Korea and Singapore. There are certainly critics of this merger-mania, as evidenced by the Wall Street Journal’s recent story titled Big Law Mergers Fuel Skepticism.

I am very familiar with mergers and acquisitions, having been on both the buying and selling side of over 16 transactions in my career. My experience is all with software companies but definitely relatable, as both law firms and software companies are very dependent on people. What I find most interesting is how these firms apply best business practices to the merger process in order to gain maximum return. Along these lines, the consultants at Project Leadership Associates highlighted the following six steps to ensure “merger happiness”:

  • A clearly articulated strategy
  • Careful diligence
  • Candor on culture
  • Coordinated cross-selling
  • Quick decisions on organization structure
  • Well defined goals and measurements

In addition, the research firm Acritas had their own take on the “best-case” legal merger. They argued that “The strategic rationale of mergers is often both opportunistic and defensive. A merger strategy can propel a firm forward in terms of size, capabilities, and in most cases, geographical footprint. However, to ensure that the merger leads to rapid organic growth, the firm must ensure: 1) That each suitor really does bring benefits; and 2) That the combined firm communicates effectively with all stakeholder groups to overcome any fears and to raise awareness of the benefits as they apply to each group.”

When you examine what legal industry consultants recommend for successful mergers, a few common themes surface:

  • Clarity in both your goals and the strategies to achieve them
  • Good communication with all the relevant parties, including the merging firm, your partners, associates, and even the media
  • The tried-and-true wisdom of knowing what you are buying

These sound, basic business principles work when it comes to mergers. Has your firm experienced a merger in the last few years, or are you considering one in the near future? What are your thoughts and experiences? Join the discussion on LinkedIn or Twitter @Aderant and let us know what you think!