SOLUTIONS: MERGERS

While law firm mergers are on the increase, the legal profession has not yet experienced anything like the level of consolidation that has been observed in other knowledge-intensive industries in recent years. We have insights born of deep research into what triggers mergers and how value is created and diluted during mergers.

While law firm mergers are on the increase, the legal profession has not yet experienced anything like the level of consolidation that has been observed in other knowledge-intensive industries in recent years. We have insights born of deep research into what triggers mergers and how value is created and diluted during mergers.

While law firm mergers are on the increase, the legal profession has not yet experienced anything like the level of consolidation that has been observed in other knowledge-intensive industries in recent years. We have insights born of deep research into what triggers mergers and how value is created and diluted during mergers.

Scholarly research into business merger is almost uniform in its conclusion that more than half of mergers ultimately fail to deliver the benefits upon which they were premised. Some literature places that estimate far higher – up to 80%. Clearly, mergers are high-risk strategies. Little evidence exists to suggest that the risks involved in law firm mergers are less than those in other kinds.

Yet, that trend towards market consolidation in the legal profession is widely expected to accelerate. For firms experiencing declines in performance, the need to merger is frequently driven by the realization that the firm’s business model is no longer viable – perhaps following departure of a critical mass of high-performance partners. Mergers are also one of the most important options that law firm leaders consider when they are thinking about how best to grow scale, or to enter new markets or develop new capabilities.

Frequently, poorly executed post-merger integration is to blame for merger failure. Equally frequently, the culprit is a poorly conceived or unclear strategic rationale for the merger in the first place. We support clients though all phases of a merger, to ensure that it delivers the best results.

We support our clients in:

  • assessing the need for growth (including by merger) by evaluating the scale of a firm across different dimensions (e.g. practice, geography, industry sector, key client grouping) relative to competitors and to client expectations, in order to assess where growth or scaling back is advisable, and what other options exist
  • identifying options for growth and developing a detailed assessment of the advantages and shortcomings of each
  • articulating how each growth option will likely impact the firm’s standing with its clients, its competitive position in the market, and how that might translate into enhanced revenues and profitability
  • produce compelling pitch documents to enable law firm leaders to effectively communicate the business case to the target merger candidate and also to their own partners
  • assessing options for (usually) independent firms seeking to be acquired, in response to intensifying competitive pressures or otherwise
  • valuation of law firm brands and businesses, for instance as a precursor to selling the firm either privately or publicly, or as a foundation for a strategy that is focused on the enhancement of that value
  • assessing the culture of the merging firms in order to identify areas where synergies exist, and where difficulties may emerge during post-merger integration
  • developing a new, joint strategy for the combined firm
  • assessing the systems and structures in the merging firms and how best to integrate these, taking a future focused view but one founded in the realities of existing vendor agreements and other limitations
  • post-merger integration of the merging businesses, to create a new firm that clients value more than the sum of the legacy firms and that delivers better performance than the legacy firms, combined
  • integrating governance and decision-making structures and processes.

Case Study:
A major transatlantic merger for a leading UK law firm

A prominent London-based firm determined that it needed to merge with a U.S. firm in order to achieve its long-term strategic objectives. We agreed a set of criteria with them (both quantitative and qualitative) defining what they sought in a merger partner and applied that to the universe of U.S. law firms. Preliminary rounds of analysis led to the development of a ‘long list’ and then further analysis to a short list of four.

We then conducted a ‘deep dive’ assessment on those four, which formed the basis of discussions between the firm and the preferred candidate. The deck that we produced was intended also as a briefing for partners, at the meeting at which the firm’s leadership pitched the merger to the partnership.

The merger was unanimously approved and the combination that resulted has subsequently grown to be the largest law firm in the world, with >10,000 lawyers.

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Case Study:
Developing a strategy for a newly merged firm

A newly merged regional firm was seeking to clarify its strategic position within its home market in the face of volatile market conditions and competitive threats from new entrants. We conducted detailed analysis of the market and competitors as well as the firm itself including client trends, work type trends and profitability trends.

Our analysis confirmed the firm’s position amongst a small group of leading firms within its market but with considerable scope to consolidate and improve its competitiveness including relative to its immediate competitors. Our analysis also highlighted further potential within the firm’s network to capitalise on closer intra-regional cooperation both with respect to cross-border work and operational efficiency.

The engagement resulted in a series of strategy implementation programmes including a number focusing on business unit performance.

Case Study:
Search for merger candidates in multiple cities, for a leading UK law firm

A leading UK firm needed to identify potential overseas merger candidates, to inform its decision-making about how to achieve its target strategic position in its highly mature, hyper-competitive market.

We developed key criteria in consultation with our client’s leaders, conducted in-depth due diligence on international firms (assessing each objectively against the criteria) and provided a shortlist of candidates. We then developed detailed profiles for each of the shortlisted firms and summarised the pros and cons with recommendations tailored to each. The analyses produced a shortlist of six to eight viable merger candidates in one of four major legal centres.

The findings informed a series of targeted approaches. Whilst the firm has yet to consummate the major merger that was anticipated, our analysis continues to drive the thinking within the leadership team.

Case Study:
Cultural assessment of merging law firms, by practice group

Based on previous experience involving culture assessments of >100 law firms over a period of more than a decade, we developed a tool for measuring and describing law firm culture across a range of important criteria, relevant to law firms undergoing a merger. We then deployed that tool across the firms involved in a major, recent UK law firm merger. The analysis identified areas of similarity and of difference across the firms, measured at practice group level, providing a useful framework for the lawyers involved to anticipate and understand challenges that might arise during post-merger integration, and to deal with these effectively.