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Law firms mergers – Chance for growth, or a fly in the ointment

merger law firmGrowth is imperative in today’s competitive world, in Israel in particular and all around the world. All businesses must constantly adapt to the dynamic reality of the market. Law firms are not exempt; growth often seems the only way to increase profitability, which can mean the difference between survival, and liquidation

In Israel, most law firms have conducted – or are still negotiating – mergers between them and other law firms. Strangely, most firms never give a clear answer as to why they want to merge, nor do they articulate concrete expectations from potential partners

To penetrate the ‘fog of war’ around the merger, firms must formulate and agree to a clear strategy of growth with all partners. In this article we highlight some principles for a successful merger, to ensure lasting growth

A) Negotiation

This should be a preliminary stage of cooperation. Not a litigation zone! Between lawyers, it often happens that both parties regard merger negotiations as a battle against legal opponents. That almost always requires “arm-twisting”

To prevent such a confrontation, it is important to realize that any ‘victory’ scored during merger negotiations may breed rivalry in the very near future

To avoid creating future feuds, both parties must act in good faith and complete transparency to ensure their firms are fairly represented. Lawyers remember! The lawyers in front of you are not your enemies, but potential partners

 

B) A merger is not an aggressive takeover

During negotiations between a large and small firm, there may be a tendency to dictate management patterns of the large firm onto the smaller firm. The reasoning – The smaller firm should naturally ‘align’ with the bigger, more complex, management system of the large firm

Sometimes this approach is a serious mistake. Successful work practices in the smaller firm may actually bring a good deal of benefit to its heavier partner.  The larger firm must be open to new ideas from the smaller firm, the sooner they reach an agreement on the work methodology, the better

C) Leave the past behind

merger law firmsA common mistake is attempting to implement the management methodology from before the merger to the new conjoined company.

Usually, at least part of the purpose of a merger is management optimization. However, many executives are not emotionally equipped to cope with the fact of a new company. They declare, ‘Nothing will change! Everything will remain as it was before!’

To avoid getting stuck in the past, firms must establish new management principals and new work methodologies that will suit the future goals of the new company

D) Internal objections to the merger – an insurmountable obstacle

Merger failures arise not only from disagreement between lawyers of the two firms, but also within each original office. A classic example is opposition from senior partners. The reason is often financial- in a merger, the number of senior partners increases, so profits will be divided among a larger number of partners

Although the merger should increase the business cycle, creating a sum larger than its original parts, senior partners can easily conclude that according to his calculations he’d rather share a smaller ‘pie’ with fewer partners, than a big ‘cake’ with a room full of hungry new partners

Partner objection to mergers may be particularly effective when a group of partners organizes together to halt the merger. In most law firms, merger approval requires a special majority of 65-75% of partner consensus, making it easy for a team of partners to create a block against the merger when it is presented for approval

Such objections are perhaps the most problematic for mergers. Fortunately, they can be nipped in the bud. Early, intimate partner meetings that explain the strategic vision of the merger – stressing benefits can be extremely valuable. If not all partners see the light, at least you’ll know what steps to take, and who might put up resistance, to prevent surprises further down the line

E) A merger… now what

law firm mergerProblems don’t end after the merger is established. Even the best negotiations can ultimately get unstuck. Mergers are unsuccessful when wrong decisions, and bad conduct, become the lore of post-merger stages

A very damaging late-stage problem is lack of team integration. While partners of both sides have learned to cooperate, the new positive wind does not always allow the firm’s administrative staff who remains anxious of the merger and may speculate on negative for consequences their future

Real integration must be at every level of the new firm, including all interns and secretaries. Without effective legal and administrative support it will be impossible for the firm to function. Tensions can be truly complex around the junior lawyers. Unlike partners, these juniors did not choose to merge, and have mostly not been involved in the negotiations. Tread carefully

To avoid problems at the post-merger stage, you must deploy an orderly work plan, including tasks, distribution of responsibilities, and schedules 

For example, the firm’s manager should distribute a report on administrative functions relating to the first period after the merger. This report should be drafted as soon as possible. ‘Team-building’ activities, especially for administrative staff, can be a great tool to knit together the two offices

Additionally, we recommended launching a strong marketing campaign that explains the merger to existing clients, stressing what’s in it for them. Client’s retention at this point is critical and must be supported by direct emails, meetings, and media campaigns

To conclude

A merger is most desirable when based not only on economic models, but also shared corporate culture and management. The merger can be much enhanced with quick, positive messages in the early stages, cushioning any trauma to junior staff and clients

Accurate scheduling is critical, as is sensible distribution of responsibilities among key figures across both offices. The customer retention phase ‘post- merger’ will succeed based on real cooperation; good intentions and good faith with roots forged during the preliminary merger negotiations

Getting these ingredients right is evidently no easy task. But remember the upside: done well, a successful merger will truly payoff, a new business more successful than any sum of its former, divided parts

Robus (Legal Marketing and Consulting Services) deals extensively in mergers and collaborations between law firms and lawyers, in Israel and abroad. For further information, please contact our office

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