Someone once said, “I think, therefore I am”. In the context of law firms it would not be too far from the truth to say, “I merge, therefore I am a law firm”.
Law firms love to merge. There is strength in numbers (size). There is synergy, clout, geographic reach and even cost savings.
We read about law firm mergers all the time. Almost all of the larger and well-known law firms in Australia and the world are the result of mergers. Without fail, in every law firm merger announcement, the benefits to the clients of the firms are proclaimed.
You can’t have a merger without the representatives of the firms talking to each other first. Michael D. Short of LawVision consultants has revealed fascinating statistics from his firm’s experience of being involved as an advisor and consultant in these talks.
He has revealed that only 1 in 10 merger explorations make it to a viable transaction. “Then, one in two of our serious conversations (roughly) end up in a deal,” writes Michael Short.
Why is it only 1 in 10? He gives six reasons. For example:
“Lack of an exciting vision from the interested firm – Far too many messages in these initial meetings focus on the greatness of the larger firm, rather than on the benefits to the smaller firm. As a leader of the smaller firm that isn’t looking for this deal, such a message sounds like “we are great; you’re pretty good; you can be greater if you join us; it’s obvious that you should do so…isn’t it?” In our experiences, the initial meetings that are successful focus squarely on the benefits of the combination to the other firm with no discussion on comparative metrics.”
“Cultures don’t match – This can be a conclusion based on a misalignment between important philosophies (e.g., partner compensation, bank borrowing, data transparency) or a sincere gut feeling that is not focused on any particular factor.”
Why do roughly half of serious merger discussions end without a merger?
Numerous reasons are given, including a deal-killing conflict with key clients.
Also, “when two leadership teams enter discussions it is assumed that they have the support of their partnerships, but this is not always the case.”
The deal breakers seem to be variations on the theme of firms not understanding themselves or the other firm well enough and therefore having discussions with the ‘wrong’ merger target.