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5 Key Things Law Firms Need to Consider Before Undertaking a Law Firm Merger

5 Key Things Law Firms Need to Consider Before Undertaking a Law Firm Merger 3

Some law firms seem to be full-time participants in law firm merger activity. As new markets are entered and competitors gobbled up, the voracious law firms bring to their transactions a wealth of experience their counterparts often lack. If your law firm is thinking about merger for the first time, will a lack of experience lead to rookie mistakes that are a source of regret forever?

Avoiding ever-lasting errors requires a number of things. For starters, good professional help, be it legal, financial, or strategic, is essential. A do-it-yourself merger, even if your M&A practice group is stellar, is fraught with risk. But beyond the professional assistance, a driven curiosity in five merger elements can guide first-time merger participants towards fewer mistakes and happier outcomes.

Being inquisitive about the following five things may not assure eternal bliss, but they likely will prevent abject misery. 

Understand the Terminology.  In most mergers, the more experienced firm opens discussions with a language unique to it that describes basic concepts. The terminology may seem unintelligible, it may seem a little familiar, or it may match perfectly with concepts at the novice firm.  But don’t assume that familiar sounding terms have a familiar meaning. Unless all the nomenclature is understood, key components of any proposed transaction will be missed, and post-closing life may be disappointing.

Check References. A lot of firms seeking to merge or acquire other firms have been doing similar transactions for a while.  If so, dig deep into the firm’s track record of integration, post-merger success and failure.  Calls to former partners for references on the other firm is simply good diligence. You’d be surprised at how much you learn.

Understand the Firm Policies.  No one would contemplate a merger without digging into the other firm’s constituent documents.  Don’t stop there.  A lot of what gets done in a firm is contained in its policies.  Many law firms use policies extensively as management tools-those tools can make day-to-day life very different from the glorious stories told while courting.  Understand the policies-they will provide a glimpse into future.

Understand the Firm Strategic Plan.  Read the other firm’s strategic plan to be sure its strategy and tactics are clear-but also read between the lines.   Understanding a firm’s overall strategy helps you determine whether your firm fits within the other firm’s plan.  For example, if the experienced firm’s strategy seeks to eliminate low margin practices, some targeted firm practices may not fit well.  Worse yet, if your prospective merger partner doesn’t have a strategic plan or it is old, the quality of management has to be questioned.

Compare the Values of Ownership.  No doubt your suitor is pouring over your data in an attempt to determine whether a merger will be a financial net benefit or burden.  You should do the same and not assume that just because it is a familiar name it is financially stronger.  You should assess the value of your equity pre-merger and post-merger.  Do the values at the other firm compare favorably? How a delta in comparative net equity, and other financial disparities, is resolved may be the difference in doing the deal or not.

When agreeing to merger for the first time, getting it right is very important because a second chance is seldom given.  With so much at stake, shouldn’t you methodically cover all the bases before saying “yes?”

Author: Andrew Jillson is a director of Hayse LLC a law firm advisory firm

Andrew Jillson
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