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Don't Merge with Dickheads and other Deep Wisdom

Monday, 22 February 2021

It’s predicted that in the wake of Covid, thousands of law firms will be forced to merge. Many of those doing the predicting are professional advisers on mergers, so one should not automatically take their crystal-gazing at face-value. But still, it’s not out of the question. Even before the pandemic, merger business was brisk, and there have been some notable deals during it. 

Some of this activity has been strategic and successful. In other cases, it has had the whiff of two struggling bald men opting to share a comb. Having experienced personally one of the early significant cross-border mergers, and worked closely since with firms large and small on their own journey, here are what I think are rules for success, regardless of type and size of firm. 


The secrets of a successful law firm merger

Rule 1: Dont merge with dickheads

This has nothing to do with legal skills. I have met great lawyers who were, and indeed are, quite tremendous dickheads. So, probably, have you. I mean by this their values, standards of conduct, integrity, and emotional intelligence. If you see a flashing red light, don’t cross.


Rule 2: Strategy drives merger, not vice versa 

It’s essential to interrogate the reasons for our choices, and not proceed just because of a gut feel that bigger is better, or that “something” must be done.

- Why are we considering merger?

- What are our goals?

- Why will clients think the merged firm is better than the status quo?

- What will this do to our financial firepower?

- What can we do together that we cannot do separately?

- Why will our competitive position be improved?

- Will new markets be open to us, that we cannot access on our own? 

- Will we be more attractive to quality recruits? 

- Why is X our preferred merger partner? 

- What are the risks and constraints, and how will we manage them?


Rule 3: Culture matters more than strategy

The greatest determinant of success will be cultural fit. If you cannot agree on common values and “the way things are done around here”, no matter how compelling the business case, there will be grief and pain for eternity. Vital though they are, there’s a lot more to diligence than the balance sheet, the financial KPIs, the claims record and a file sample. How does each firm treat its people? What does work-life balance really mean? What does great client service mean to each firm? 

Get out the office with your proposed new colleagues. Engage deeply, Look them in the eye and see what lies beneath the skin. Be clear about where you each stand on drawings, borrowing and investment risk. I once advised on a merger where the larger of the two firms thought it was fine to borrow to pay VAT and tax. so that partners could draw more. The smaller firm, still a very substantial business, who prided themselves on their prudence, were aghast. It was a deal-breaker, and that was a pity, but pulling out was the right decision.


Rule 4: One plus one must make more than two

Unless the merged firm will be not just bigger, but better, providing a higher quality service, with greater growth potential, more robust defensive qualities, perhaps a solution to succession issues, and the likelihood of higher profits over the long term, don’t merge. Is the merger filling gaps for both firms, or significantly enhancing their offer? The more this is so, the more likely it is that the new firm will succeed. 

Cost savings may be a benefit of merger, but are rarely a good enough reason in themselves, and can usually be achieved in less disruptive ways.


Rule 5: Take the clients on the journey

It’s common that 80% of a law firm’s business will come from 20% of the clients. It’s equally common that clients will be suspicious of change, and so merger is always moment of risk. As soon as practicable, take key clients into your confidence, explain the rationale, seek their candid opinion, and invite them to test your assumptions. Often people from other sectors, with different perspectives, will have invaluable insights. The better you engage, the more likely they are to stay. Indeed, a good many mergers have come about as a direct result of client pressure for greater scale and diversity of skills. If you have good reasons, well articulated, clients will get behind you.


Rule 6: Communicate, communicate, communicate

It’s very difficult to stop the rumour mill grinding, and all kinds of nonsense rush to fill a vacuum. From day one, explain the rationale to colleagues, and as far as you can, keep them in the loop. Recognise that everyone will ask, quite reasonably, “What does this mean for me?”, and be ready to engage sympathetically with their concerns.


Rule 7: Count the true cost

Calculate with great care how much merger will cost you in time, resources, dislocation and cash. Then double it.


Rule 8: Pay attention to the politics

Almost inevitably, there will be issues about leadership and hierarchy. In many cases, the right answer will be obvious. Where negotiation is needed, it should be handled sensitively, but also candidly. Do your utmost to preserve dignity and give reassurance, but not at the expense of a fudge which prevents effective management post-merger. 


Rule 9: Keep the transition team tight

Implementation is best achieved by a tight-knit team of players from both sides, each of whom should have clear, specific areas of responsibility and reporting lines.


Rule 10: Identify deal-breakers early

As soon as possible, identify potential client conflicts, and be realistic about how, or indeed if, they can be handled without significant damage. Similarly, how are financial or political boulders to be rolled aside? Don’t become over-invested. The thrill of the chase is often an emotional, intense experience. There is a danger that the more we invest in the process, the harder it is to be objective, and the greater the temptation to dismiss or underestimate concerns as they emerge. Work hard for success, but be willing, always, to walk away.


Rule 11: Plan the aftermath

“Mission accomplished”, declared President George W. Bush, after the invasion of Iraq, having paid little or no attention to what came next. How well that has worked out. Getting the deal over the line is just the start. Well before D-Day, you need clear agreement at the top on what happens next, and dedicated people, properly resourced, to take care of the implementation. Immense care must be taken with how the merger is communicated internally and externally. While this sounds no more than a statement of the obvious, it’s surprising how often, after the initial euphoria, things are left to take care of themselves. 

A merger is not a mission. A mission usually involves getting in, doing what needs to be done and getting out with minimum casualties. A merger is a process of building something that will endure and continue to do good long after the original architects have gone. Pay attention to these principles, and you will give yourself the best chance of success. 


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I was the founder and senior partner of a multi-award winning law firm that became a UK leader in its sectors. Today, I work as a consultant and non-exec with leading law firms throughout the UK and in Ireland. You can read testimonials here. If you would like to link with me on LinkedIn, you'll find me here.