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For the last decade plus, merger has been a strategic choice for many law firms. The 2020 pandemic had a negative impact on the quantity of mergers but many including our firm expect there to be a major uptick in 2021.
Given the probability that firms will at least be considering merger as part of their go forward plan, it seems prudent to think about what a good merger partner should look like.
To that end, here are 10 questions you should answer before having a conversation with another firm:
A lack of cultural compatibility is difficult, if not impossible to overcome, and one of the reasons so many combinations fail.
A lack of similarity in realized rates drives conflicts in staffing client files, compensation, and a host of other critical law firm areas.
A good merger partner will have economic metrics that are similar to yours (of course unless your firm is failing). Metrics significantly different from yours—whether better or worse—will lead to painful pressure for one party or the other on rates, hours, and retention.
Merging with a firm with a significantly different approach to compensation will almost certainly result in a different relative treatment among your existing partners, possibly with unexpected negative consequences.
Questions like are you comfortable being a small outpost of a mega firm, or even small relative to your merger partner, are good questions to think about. The greater the size disparity in a combination the less “say” the smaller firm will have in future decisions.
If so, in what specific way would you like to see a merger partner solve those issues?
Firms are governed in a range of ways, from very democratic to tremendous authority being vested in a few. It is important to know in advance what you are comfortable with and what is off-the-table in terms of governing options.
Risk in a law firm includes bank debt, partner turnover, unfunded pension plans, pending or threatened litigation and loss of key clients. Understanding your risk-tolerance is key to a successful merger.
The answers to these questions, and the impact the answers will have on your approach to a merger possibility will vary depending on whether you are acquiring or being acquired; but the greater the variance between how you feel with respect to these 10 issues, and the reality of the world you’re considering will be a predictor of the success of the combination.
If a strategic merger is in your future, smart leaders will engage in identifying the things that are most important to their partners; far too many mergers occur without defining in advance what a firm is seeking, and why.
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