The Objectives Behind a Merger
The goals of a merger in many law firms are quite ambitious. To ensure a successful merger, the merging firms need to do their due diligence to make sure the proper planning is done. This should include thorough merger discussions to determine each firm’s best strategies and desired outcomes. There are also many contingencies that should be considered when pursuing this endeavor, making preparation and research even more essential. If handled appropriately, there is potential for great success when two law firms merge.Considerations in Deciding a Law Firm Merger
All firms must consider their desirability when negotiating with other firms, including reputation, expertise, legal status, and financial stability. Understanding these key areas is essential for successful negotiations.Culture
- Firm culture and values are key factors in a successful merger, as significant cultural differences between firms can prevent the deal from happening. It is important to understand and be able to explain the culture and values of a firm before beginning a merger search.
Perception
- A firm's public and community perception should be considered when evaluating potential merger partners. Firms that are viewed unfavorably may need help attracting quality candidates and may need extra effort to improve their perception. Merger partners are typically not looking for an opportunity to resolve another firm's challenges.
Branch Offices
- Firms considering mergers must be aware that problematic branch offices can greatly reduce their merger prospects. Merger partners may be unwilling to merge with a firm that has a disruptive branch office, so firms with such offices may need to either bring the branch back into the fold or do without it to complete the merger.
Synergy
- Synergy is an important factor for businesses considering a merger, as it can enable them to achieve a stronger market position than either of the firms could. To maximize the synergy potential of a merger, firms should realistically assess their strengths and weaknesses to identify suitable partners and articulate the positive outcomes of combining.
Client Relationships
- To ensure the success of a merger, firms should focus on building strong relationships with clients and minimizing any potential revenue lost due to the merger. Firms should also ensure that the key revenue generators see the potential value in the merged firm and commit to it.
Unfunded Retirement Plans
- Unfunded retirement plans can pose a major risk and liability to companies, especially when it comes to considering merger prospects. Firms need to quantify or eliminate any unfunded obligations before taking steps toward a merger to strengthen their bargaining position. Please do so to avoid opposition from the firm's partners regarding payments for retired partners of the other firm.
Capital
- For a potential merger to succeed, it is important for the partners involved to have similar capitalization philosophies and per-partner capital levels. If significant differences exist in these areas, it may be difficult to move forward with the merger. Additionally, partners must be willing to contribute additional capital if needed in a merger situation. If there is reluctance from any of the partners, it may limit potential merger opportunities.
Finances
- Mergers and acquisitions heavily depend on financial history and work ethic, so it is important to review at least three years of historical financial performance. Firms with below-average economics may need help to make a merger happen, whereas those with stronger economic performance have more negotiation leverage.
Net income is not the only key consideration when determining a business’s financial future. Establishing a successful and sustainable commercial venture involves building and nurturing an effective business plan with strategic components such as market share reviews, management structure assessments, and sound business practices. Through extensive research and formulating recommendations based on historical trends and future predictions, businesses can establish a framework to obtain net income while maximizing performance in other areas. A strong focus on the core financial considerations of the business allows for continued success in acquiring net income and leveraging those resources to further expand all aspects of that business, from reaching new customers to updating existing product lines.
Debt
- Debt is an important factor to consider when evaluating a potential merger partner. If the firm has incurred debt for purposes other than asset-related items, steps should be taken to eliminate it quickly and create policies to limit borrowing in the future. All firms should also be aware of any debt covenants that may limit the ability to merge. It is essential to consider these matters when considering any merger or acquisition.
Leases
- Suppose a law firm's lease is up for renewal, and the rental market has increased since they last negotiated their lease. In that case, this can significantly impact their partners as they may have to cover any rent increase personally. To prevent this, the firm must dedicate time and resources to negotiating a new lease that works for all parties involved.
