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Getting profit-sharing arrangements right in a merger

By Andrew Hedley, Director, Hedley Consulting

15 January 2013

A merger makes sense if the new firm is better able to compete than either of its antecedents. For some firms, ‘compete’ means that the merged entity simply has a better prognosis for long-term survival, while for others it will be characterised by more opportunities, an improved market position and a reshaped business model.

Regardless of the strategic rationale, implicit in any notion of being “better able to compete” is an understanding that sustainable shareholder returns will improve, if not instantly, then certainly in the short term. In a conventional law firm model, with profits fully distributed each year, what this means in practice is that average profits per equity partner will be better post-merger than pre-merger.

How these profits are generated is central to strategy development and, thereafter, the effective implementation of the busin...

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