Boutique firms as a top merger target
By Jeff Zindani
Jeff Zindani explores why boutique firms are the number one target for legal mergers and acquisitions
When I talk to managing partners about their growth plans, top of their acquisition wish list are boutique law firms. Generally, they are talking about small scale firms that bring together talented lawyers practising in one or two niche areas. These firms are characterised by an entrepreneurialism and enthusiasm that separates them from full-service practices or ‘big law.’ These agile firms are on the rise, offering a more personalised and focused service than many larger firms. The vision their founders have is often very personal, borne out of the problems and frustrations they have experienced working in more traditional firms. The mindset is one of rebellion. They want to create an alternative working environment, serving clients and lawyers better, unshackled by the past and built on a set of values they cherish.
In many ways, covid-19 accelerated the growth of niche firms, as employees demanded more flexible ways of working and revaluated what they wanted from their lives. Work is increasingly tailored to a lawyer’s needs, not just those of clients, and work-life balance has become all important. Firms are becoming more approachable, accessible and trusted experts of choice. In many ways, however, little has changed. People buy people – and simply being a good lawyer, as we all know, does not mean, by itself, you retain clients. Boutique firms know this and are thriving, from high-end commercial litigation firms to private client and family law specialists. They are building reputations for expertise, giving clients easy access to partner-level knowledge – and attracting talented lawyers with an alternative to the big firms.
Buying what you don't have
So, what’s driving so many larger firms to look at acquiring boutique firms? For the most part, larger firms want to acquire or merge with boutiques to fill capability that they don’t have – and would struggle to build or replicate through recruitment and organic growth alone. Bringing in lateral hires capable of building a team from the ground up is a big ask and can take years, not months. Merging with a boutique makes perfect commercial sense: by merging small practices, firms can boost fee income and access larger financing pools for expansion, compete with other firms in niche practice areas and client sectors, while increasing the overall value of the business.
Dangers of a bolt-on
This approach is not always straightforward. The notion that you can simply bolt onto a firm, particularly a boutique type practice, raises a raft of different issues. The biggest problem when it comes to firm mergers isn’t negotiating a deal, it is blending two cultures. Cultures can be tight and loose – and simply merging two firms can lead to serious failures if those cultures are diametrically opposed. Boutique firms generally fit the ‘loose’ category. Often the very reason they are so successful is their culture and the attraction it holds for clients and fee-earners alike. Any merger needs to be at pains to preserve those elements if it is to be a success.
What's in it for niche firms?
The benefits for a full-service firm merging with a boutique firm might be obvious, but given the potential loss of identity and control, what’s in it for them? There is a limit to how far can you grow when you are niche. Founders will want to evaluate how large the potential pool of clients and employees is and consider what the future looks like. Standing still is not an option.
For many, the momentum experienced in the early days stalls. For some founders, the passion they felt at the outset fades as their firm grows and more time is consumed with management. A merger with a larger firm promises a ready stream of new clients, investment and economies of scale. More money to spend on IT systems and marketing, the ability to pay more competitive salaries, a succession plan – and the possibility of exit for founding partners.
Ultimately a merger between a boutique firm and a larger, full-service firm can bring benefits to both. If significant work goes into ensuring a cultural fit, alongside financials and practice area synergies, the boutique firm can preserve what made it successful and both merger partners will thrive.
Jeff Zindani is a merger consultant and matchmaker for law firms and legal tech companies at Acquira Professional Services: acquiraps.co.uk