You are here

UK’s top law firms: Two-thirds of our merger discussions fail

'Informal due diligence' being used to determine suitability, research finds 

28 January 2015

Add comment

By Manju Manglani, Editor (@ManjuManglani)

Significant consolidation will take place among the UK's top-200 law firms in the next two years.

That's according to a survey of half of the top-200 firms, among which 95 per cent expect further mergers ahead.

Among the firms which have not undertaken a merger to date, 45 per cent said they would consider merging in the next two years.

"It's very important to stand back and ask what you want to get out of this," Tony Williams, principal at Jomati, told the researchers.

The primary driver for merger cited by all survey respondents is growth. They said merger enabled firms to compete more effectively through size, to add new practice areas, to achieve cost savings and to obtain economies of scale.

When asked to consider the effectiveness of most law firm mergers over the past five years, less than half (43 per cent) of respondents from merged firms said these were successful. A further 21 per cent described those mergers as unsuccessful.

By contrast, half (49 per cent) of respondents from non-merged firms said the majority of law firm tie-ups over the past five years had been a failure. Only a quarter said most recent mergers were successful.

Rising failure rate of merger negotiations

The majority of merger discussions held by both merged and non-merged top-200 law firms ended in failure, the research found.

In total, 64 per cent of respondents from both categories said they had held unsuccessful merger discussions.

Sixty per cent of those from merged firms said they had held discussions with another firm that did not ultimately result in a merger. Interestingly, a further 24 per cent declined to answer the question.

Two-thirds of non-merged firms also said they had held unsuccessful merger discussions over the past five years, while a further 10 per cent declined to respond.

The survey of 102 of the UK's top-200 law firms by Fox Williams and Byfield Consultancy confirms the findings of a related survey a year ago by Smith & Williamson of 102 of the UK's top-250 law firms.

The earlier survey found that 56 per cent of merger discussions in recent years ended in failure. A third had spent more than three months in negotiations before deciding to halt talks.

The latest survey suggests that not only has no progress has been made in resolving the key issues early in the merger process, but that firms are also failing to learn from the lessons of their peers' mistakes.

Insufficient due diligence and internal communication

A big failing highlighted by the latest research is a lack of formal due diligence of potential merger partners prior to the commencement of merger discussions.

Half of merged firm respondents said they had gauged the reputation of a potential partner through its press coverage and by word of mouth. Only 43 per cent relied on client feedback.

Two-thirds of respondents from non-merged firms said they would use client feedback, followed by word of mouth (54 per cent) and press coverage (52 per cent).

"Many firms adopt an approach to finding merger partners that is surprisingly lacking in rigour," commented Tina Williams, chair and head of professional practices at Fox Williams.

"The latter is remarkable, given that most firms' business models involve selling the benefits to clients of taking independent expert advice."

When asked to vote on one element of the merger process that they would like to have improved in retrospect, the majority (32 per cent) of merged firms selected internal communications, followed by better overall due diligence (11 per cent).

However, when asked to consider at which stages they should involve the internal communications team in the merger process, half (53 per cent) of merged firms said it was not important to involve them from the initial discussions. The majority (80 per cent) felt the most important time to involve internal communications was at the pre-announcement and post-merger stages.

"Marketing staff are part of the core team on the merger, as their input will be integral in conversations about the proposed deal," Caroline Rhys Jones, Norton Rose's group then head of BD, told Managing Partner (see 'Merger reverberations: Manage communications on cross-border mergers').

Beverly Landais, formerly director of BD and marketing at Baker & McKenzie, advocates senior marketing staff being involved from the earliest possible stage and at senior level, "not just drafting press releases the week it all happens".

The results of the Fox Williams and Byfield Consultancy survey of 102 top-200 UK law firms, which was conducted between October and December 2014, are published in The Dating Game.

Managing Partner's 2014 book The Law Firm Merger: A Leader's Guide to Strategy and Realisation by editorial advisory board member Andrew Hedley provides a comprehensive framework for merger decision making and implementation.

 

 

 

 

Categorised in:

Business development & Strategy Marketing Risk & Compliance