Mergers

Done properly, mergers create great value for both law firms and their clients

Merger discussions are on the rise again, driven by a mix of technological, economic and regulatory shocks. As foretold by well-established strategy theory, a global merger wave amongst law firms followed the global financial crisis of 2009/10. That wave was driven largely by a small number of firms that seized the opportunity to become truly global businesses, combining with other firms that were under pressure. Which firms will lead the next merger wave? With which firms will they combine?

Mergers are amongst the most radical, transformative steps that any business can take. For some, the merger will deliver a step-change in sustainable competitive advantage and set the firm on a new, more ambitious strategic trajectory. For others, the results will be lacklustre. Our goal is to help you ensure that yours is amongst the former.

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A successful outcome demands far more than just adept negotiation. It requires a multi-faceted strategy that delivers sustainable competitive advantage in ways not achievable by the merged firms independently. It requires that effective plans be crafted, properly resourced and executed to achieve new, more ambitious strategic objectives. It requires that different cultures be fused together into a new, high performance whole. It requires that new value propositions be crafted, that clients find more compelling than those of new sets of peer rivals. Care must be taken that key talent is retained in the new, combined firm. Systems, structures, teams and processes must be aligned and melded together.

Besides hands-on experience, our merger advisory work is informed by some of the most important, extensive strategy research conducted on law firm mergers, to date. That research was undertaken through the Adam Smith Business School at the University of Glasgow, exploring drivers of success in 73 large U.S. and U.K. law firm mergers that took place between 2002 and 2017.

Our mission is to use the unique insights discovered through our research, to help law and other professional service firms successfully navigate the complexities of mergers and to use them to build long-term sustainable competitive advantage.

Merger Services

Developing the underpinning strategy

Whether your firm is initiating a merger as an acquiror or positioning itself to be the target in one, a clear and compelling strategic vision is essential.  How will the merger enhance core capabilities and acquire new ones? Provide access to new markets and clients? Enhance the loyalty and engagement of the firm’s most important people? Deliver better results for the merging firms than they could achieve separately? Addressing these questions with precision and foresight is critical to leveraging a merger as a strategic opportunity for growth and enhanced market positioning.

We can help you:

  • Assess the range of options that exist, to achieve your strategic objectives, including a merger but also lateral and team hires, alliance arrangements and organic growth.
  • Assess the range of opportunities that a merger will deliver, for instance to enhance key capabilities, acquire new ones, entering new markets or otherwise expand market share, solve problems that are intractable in the normal course of business, enhance market power, or deepen and broaden relationships with key clients.
  • Decide on the degree to which the businesses will be combined. Will the combined firm be a “one-firm-firm” with a unitary governance and operating model, or will the businesses collaborate as co-branded entities – perhaps utilising a Swiss verein or similar model? Or something in between?

Acquiror-side deal advisory

Our acquiror-side deal advisory work helps you to: find the best possible merger target; conclude a deal that delivers high value and allows the businesses to integrate efficiently; set the combined business on the best possible strategic trajectory.

We can help you:

  • Generate qualification criteria in terms both of strategic, structural and cultural fit.
  • Conduct arms-length comparative scenario assessments on short-listed targets to determine their relative opportunities and challenges and alignment with the qualification criteria.
  • Approach short-listed firms to assess their interest, their own strategic intent and what their key issues would be.
  • Assess governance and other “red flag” issues that would need to be addressed in order for the merger to be successful.
  • In cases where the target firm is founder-led, and that founder wishes to exit, develop solutions that meet both your qualification criteria and founder needs.
  • Undertake the due diligence, working with financial, legal and other specialists to assess target systems, structures, controls, risks and performance.
  • Generate a strategy for the combined firm that makes the most of the opportunities presented by the merger.

Target-side deal advisory

Our target-side deal advisory work helps you to: understand how a merger would solve the issues that lead you to seek to be acquired; find the best possible acquiring firm; build a business case that balances making it as attractive as possible for the acquiring firm, and meeting your own needs.

We can help you:

  • Conduct an objective TOWS analysis (threats, opportunities, weaknesses, strengths) in order to identify issues that need to be addressed before a merger can be successfully executed. This process might also raise options other than a merger, that solve the issues that lead you to seek to be acquired.
  • Develop and execute a plan to prepare the firm for a merger, including the scrutiny that will be applied to the firm throughout the process.
  • Generate qualification criteria in terms both of strategic, structural and cultural fit and generate a short-list of firms that align well with the criteria.
  • Assess whether the firm has tangible or intangible assets that can be sold and, if so, developing appropriate commercial terms for inclusion in the merger (or acquisition, if the assets are sufficiently significant.)
  • Develop for founder-led firms, in which a merger forms part of their exit strategy, equitable solutions that balance the interests of the firm with the needs of the exiting founders. (This is usually quite challenging.)
  • Develop compelling business cases to pitch the firm to short-listed acquiror firms.
  • Approach short-listed acquiror firms to pitch the merger.
  • Once letters of intent are exchanged, undertake the due diligence, working with financial, legal and other specialists to assess target systems, structures, controls, risks and performance.
  • Together with the acquiror firm, generate a strategy for the combined firm that makes the most of the opportunities presented by the merger.

Post-merger integration

Our approach in our post-merger integration advisory work is to facilitate, coach, support and advise. It is strongly people-led, applying well-proven change management principles. Post-merger integration is not just about integrating the merging businesses. It is also about implementing performance-enhancing changes that make the combined firm greater and better than the sum of the legacy firms.

We can help you:

  • Establish an integration management office to ensure that the businesses combine and integrate smoothly and cost-effectively, while minimising adverse impacts on the firm’s economic performance.
  • Designing end-state technology-enabled operational roadmaps.
  • Understand the cultural differences between groups across the merging firms and using that to build a new, enhanced business culture within the combined firm. Our CultureFusionTM tool is specifically designed around this need.
  • Work through options to make the best decisions about which systems, processes and platforms to adopt in the new firm, and to get the best out of them.

Strategy refinement and planning for the combined firm

In 1880, Prussian Field Marshall Helmuth von Moltke the elder wrote that (paraphrased) “no plan survives first contact with the enemy.” This principle is true of business strategy following a merger (or other similar large-scale change.) While both firms will have had clear strategic aspirations for the merger, it is only once the businesses are combined that the true strategy – the full scope of what the combined firm can achieve – becomes clear. Post-deal, once people from the merging firms start working together, entirely new opportunities for value creation frequently emerge that were missed during the pre-merger phase.

Especially in law and other professional service firms, detailed planning is best done by those who will implement the plans. So, in the practice at least, that means by the partners and typically at practice group level. It turns out also that jointly setting objectives and crafting plans to achieve these in the combined firm can be a strongly bonding experience for the partners and others involved. Doing that with the cultural synergies and conflicts highlighted by CultureFusionTM [link] enables honest conversations to be had about pathways and pitfalls to success and helps a new, more collaborative culture to evolve.

Resistance to change is lower during such times of great change, so it is usually far easier to adopt radical new ways of doing things than in the normal course of business. Rather than simply seeking the path of least resistance to working together, the greatest sustainable competitive advantage can be found by using the merger to actively seek out adopt better, more ambitious, more innovative ways to practice and serve client needs.

We can help you:

  • Facilitate strategising and planning at practice group (or similar) level, supporting the teams with advice and market intelligence, and collating the work bottom-up into the firm-wide strategy.
  • Discover unexpected sources of sustainable competitive advantage created by the merger and, as appropriate, build those into the strategy.
  • Enhance the business model of the combined firm by selecting new digital tools based on strategic relevance, impact and ease of implementation.
  • Develop unified governance, compensation and other systems, structures and processes – as appropriate given your intended level of integration.

Examples of our merger advisory work

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.

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.

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

A leading UK firm wished to identify potential overseas merger candidates, to support decision-making about how to achieve its strategic objectives 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.

Cultural assessment of merging law firms

Using an earlier version of our CultureFusionTM tool, we assessed the cultures of three firms that were simultaneously merging across multiple offices and regions. The analysis identified areas of similarity and of difference across the firms, measured at practice group and office 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.