Philip Lewis says that even before Covid-19, the legal sector was seeing significant activity in law firm mergers and acquisitions.
The likelihood is that this will continue as practices grapple with increased insurance costs, the end of furlough and squeezed margins.
Benefits of law firm mergers and acquisitions to buyers and sellers
Mergers between two well-suited firms can be beneficial for both parties.
For the buyer, it can mean an increase in fees with little or no financial risk. This might be because the sale and purchase agreement includes provisions for the consideration to be reduced pound for pound if the first year’s fees don’t at least equal the purchase price. Or because partners in the selling firm become consultants for the “purchaser” and receive a percentage of the fees they generate.
For the seller, it can represent the best option if they want to continue to practice, but don’t want the burden of increased insurance costs (including run-off insurance if they are looking to close the practice) and difficulties in recruiting qualified staff. And it can provide up-and-coming lawyers and junior partners with a development or succession plan that wouldn’t have been appealing or available within the existing practice.
Some merger and acquisition pitfalls
There are also some important matters that should not be overlooked before entering into a merger.
If it is a true merger of two firms, you should consider whether the respective cultures fit. If they don’t, there is a high risk that you will lose both good staff and clients.
The respective pricing structure for your services are relevant. Clients can be lost quickly if there is a hike in prices with no corresponding increase in levels of service.
The profitability of the clients being acquired needs thought. The incremental fee income may seem like a good commercial outcome, but the merged practice will suffer if profitability is reduced.
The integration of systems and processes should not be overlooked. You should consider the method and timetable for having one common practice management system, as running two systems can be a costly burden. It also makes it much harder to have meaningful management information and can lead to enormous frustration.
Philip Lewis has many years of experience working with legal practices including introducing potential firms for merger and assisting with the negotiations and integration issues.
If you would like to have a free informal chat, please contact Philip on firstname.lastname@example.org.