All too often firms only seriously consider selling when the value they have created starts to diminish. Depressingly, many then leave the decision to sell until there's precious little value left to pass on. In the current climate it is more important than ever to think about what you want for the future of your firm. Do you know what the firm might be worth? Have you thought about who a likely acquirer might be or how the process even works? Have the partners and shareholders got clear exit plans in place for themselves and how would selling the firm fit?
Stay calm and carry on might look good on a poster but it is the least sensible strategy for the future of a modern law firm. Right now is the time to consider, seriously, how to sell your firm. Viv Williams Consulting have written some compelling guidance below on what to think about when approaching the sale of a law firm - essential reading for anybody who owns and runs a law firm in 2020.
In the corporate world statistics show that something like 75% of all mergers destroy shareholder value. Not that it seems to deter would be billionaires from engaging in the activity. Good firms have improved the figures to a point where 60% of mergers add value.
Law firm mergers in the current market are largely about combining the skills, experience and clients of two groups of people who are each fairly loosely bound together and uncoordinated in the first place. They are unlikely to be realising the true value of the business they have at the moment.
Combining two businesses can be an opportunity to release inherent value in a number of different ways.
A merger creates pressure for change and willingness to accept change that would otherwise not be there. It also creates opportunity to move people around in the business and to resolve issues of leadership. This gives a great opportunity to change culture.
A good attitude to take is that the firm coming out the other side of a merger will not be the same as either of the firms that went into it - please see that as an opportunity not a threat.
To increase any value of your practice in merger discussions or for outside investment it is essential to look at the key issues that a potential investor, acquirer or merger candidate would find attractive in your law firm.
Examine every area - clients and how you communicate with them, the motivation of staff and the need to deal with under-performing staff and partners, careful control of finance and targets, the relationship of partners and clients and whether these can be replaced by fee-earners, the embracing of technology, a website that attracts business, measurable and accountable marketing spend - all are areas to redress to gain the greatest value for your practice.
13 important lessons when contemplating merger
- Get help - DIY doesn't work
- Follow a merger matrix and have questions that could be "deal breakers" in the first meeting.
- Before discussions begin, research the potential merger candidate. Ensure you know the work ethic of the firm, Partners and fee earners and attitudes to staff.
- Ensure the two practices are a "good fit" - do not gloss over issues such as personalities. Many a merger fails because of personality issues and the reasons behind the merger. Is it really a good idea?
- Check out Partners in the target firm - take references and check with the bank and credit agencies. We have seen merger failure because one Partner had invested heavily in buy-to-let properties and could not maintain his portfolio and became bankrupt.
- Take professional advice on your corporate structure - the partnership model is no longer the solution.
- Agree responsibilities. Who will be the leader and MD? Who will take responsibility for the administrative functions and who will be responsible for which clients? Again mergers fail because these lines are not drawn prior to talks.
- Develop clear and concise job descriptions for Partners and all staff including expectations for chargeable and recoverable hours and charge out rates.
- Agree all salaries and how profits will be retained in the new business.
- Agree staff structure and who is getting which office and ensure you standardise hours of employment etc.
- Dispose of under-performing staff and Partners. In the current environment you cannot afford to carry any member of the team that cannot or will not perform.
- Prepare a marketing plan that is measurable and focuses both internally and externally.
- Be open with the Partners and staff of both practices: Do they understand how merger will affect their status? Do they understand the new expectations regarding time, effort, etc.?
More and more firms are coming to see opportunity and potential in merger, they are becoming more flexible in what they are prepared to consider.
Whilst that is exciting it makes it more important to do it right. The huge gap which presently exists between the number of conversations taking place and the number of deals being done suggests that firms have a way to go yet in learning how to identify the right merger partner and then to deliver the "right" deal.
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