Merger mania: The risks of buyer's remorse

When the going gets tough, the tough go shopping. Even in these austere times, shopping seems to be a national pastime. And, if you believe some economists, it is a patriotic activity. Most retailers are going through a tough time and are desperate to entice people into their shops.

The press is full of tales of failure. Well-known UK high street chains are disappearing. Clintons, Jessops, Comet and HMV have all collapsed under the new economic and commercial pressures. On the other hand, while the high street seems to be suffering, giant shopping centres seem to be booming with increased footfall and greater profits. The reaction of retailers under economic pressure is to run more sales, pile it high and sell it cheap.

Lessons from retail psychology

Lawyers can learn from the retail trade and from retail psychology. In today's marketplace, we are all in the same position as retailers. Like retailers, we are selling products and services to consumers. We are under pressure from our customers. Many small and medium-sized law firms are experiencing a drop in sales. Some big law firms continue, like gleaming mega-malls, to prosper.

Think about buying something that is both expensive and important to you, such as a computer. As the moment of purchase approaches, you feel excited and are optimistic about the transaction. You anticipate the pleasure that the purchase will bring you.

But then, the more effort and time that you have invested in the purchase, the greater is the risk that you will feel let down. Transactions that you waited for, that are expensive and challenging but ultimately don't deliver the anticipated rewards, will create buyer's remorse.

Beware of bargains, of buying cheap. You may be tempted into a shop by a sign saying '70% off' but, when you get inside, you will find that there is a reason for the heavy discounting of its products. In fact, very few products will have their prices reduced by 70 per cent, and the ones that are cheap will be a 'bargain' because they are badly made or out of fashion.

There exits a whole industry based around retail psychology. Specialists in this area are paid to persuade you to buy something that you don't really want or need, or to buy more than you need because you believe that you are getting a bargain. In fact, you may not be making any savings and you may be buying something that you do not really need. So you suffer buyers' remorse. And, if it was bought in a sale, there is a risk that you cannot return it.

When going to the shops, you should have thought beforehand about what you are looking for and what you want to buy. This is usually a combination of price and quality and must be something that you actually need.

The same rule applies to mergers. Don't be tempted into a merger just because it's sale time and everyone is queuing up for the sales. Don't be tempted because it looks like a bargain: there is always a reason why it is going cheap.

Regretting merger bargains

2012 was a busy year for mergers in the legal profession. 2013 is likely to be busy again. But how many firms that merged in 2012 are buyers who bought in haste when they saw a bargain and are now suffering buyers' remorse?

The temptation is to try to solve all of your firm's problems with a merger. You may think that you can buy your way out of feeling bad. Often, the target will appear like a comforting shop full of goodies, with nice music, a comforting smell and an enticing layout.

But, don't join the herd of people going to the sales. Don't be part of the merger mania. Think carefully and get it right. Take advice, stand back and make sure that what you are negotiating for is what you really want or need. Avoid buyer's remorse.

What do you think? Can we learn from retail physiology?