Merger suitor: Growing a law firm through mergers

 

Key takeaway points

1. Define what you are looking for and stick to it

2. Recognise that every meeting with the potential merger partner is a sales meeting – a pitch

3. Involve the relevant individuals who will enable you to present your firm’s strategy and reasons for doing the merger

4. Ensure you meet early on a cross section of the potential merger firm’s partners – you will get a much better feel for its culture, any obstacles and any sensitivities

5. Communicate – don’t forget your own firm when spending so much time (understandably) with the potential merger partner

6. Try to keep it confidential – you want to drive the process, not have to respond to press speculation

7. Make sure that your key partners are aware of the opportunity in case there is a leak

8. Constantly remind yourself of why you are looking at the opportunity – does it achieve what you need it to achieve?

9. Remember that the due diligence process is bound to uncover issues that were unexpected. Think about those carefully, how you will overcome them and don’t automatically think that they are all insurmountable. Every good opportunity carries some risk

10. Once you have merged, be proud of the combined firm – tell everyone about it!

 

Merger is a topic that is on the agenda of many partnership ?and LLP board meetings at ?the moment. There is almost a trend to ?merge, which is difficult to resist. The media, the consultants and the market ?are constantly talking about the high levels of consolidation or merger activity. Managing partners I have spoken with genuinely wonder whether they will be missing out if they don't merge.

Added to that, the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act changes as of April this year have meant that scale for certain types of work is required - this sends out a message that firms perhaps need to be bigger to survive. Insolvencies within the legal market are also adding to the uncertainty and confidence of firms to ?take brave decisions in the current economic climate.

It was against this backdrop that I became managing partner of Thomas Eggar in May 2012 - a business that, at that time, turned over £35m, had six offices and just under 400 staff. Thomas Eggar presented itself to the market as a full-service law firm. It had grown phenomenally through a combination of merger and organic growth over the past 15 years and was ready for the next stage of its journey in a very difficult and challenging legal market.

Seeds of merger

In the months leading up to becoming managing partner, I spent time looking at the business, the direction in which it was heading, the types of clients it had and wanted to have, the talent we had and wanted to have, and our profile in the market. I concluded that the business needed to do one thing: focus. The tools were all there - we had the talent, we had good clients, we had a strategy for where we wanted to be - but we were still a group of people in the market saying slightly different things to almost anyone who would listen.

Focus requires confidence, strong leadership and a clear brand. It was focus that led us to having discussions about whether we should merge and, if so, ?where and how? From day one, I encouraged my team to think of merger as a mechanism to achieve the strategy, rather than a strategy in itself. I had been asked too many times whether our strategy was to merge. My answer was (and is) always no, but I do accept that the right merger may be a way for us to achieve ?our strategic goals.

Our strategy began by identifying where we wanted to focus - which industries, which clients, which markets. We then identified the 'holes' in our offering that we would need to fill if we were to achieve our strategic objective ?of winning clients in our chosen markets and industries.

I have long believed in the importance of a strong presence in the London market, but not necessarily to win 'London clients' (whatever they may be). Part of our plan was (and remains as) to do the work with the best-placed team at the most competitive price for the client, but also to make our offering to our targeted client base (certain industries and certainly overseas clients) more credible.

London was strategically important because certain lawyers are keen to work in London. Our strategy therefore was to strengthen the London office so that it had the requisite talent, skill base and depth to attract the types of clients and work we had identified in our business plan. Merger was a way of achieving that goal, but not ?the only way.

Growth strategy

We had three obvious options to grow ?our London presence: acquire teams, ?grow organically or merge. We were clear from the outset that we were not driven ?by a desire to be bigger; we wanted to focus and acquire skill sets that were relevant to our strategic plan to win work from our targeted clients. Therefore, merger was only really an option if it brought us some of the skills/abilities to start to fill our 'holes'.

There were some obvious attractions of merger: ?

• speed - it was likely to change the profile of our London office overnight;

• profile - the media would report on it; and

• change - it would change the dynamics in the firm.

But all of those elements, if the wrong merger partner was chosen, could be disastrous for the firm.

Team acquisition/lateral hires was our other real option. We had a clear strategy about focusing our growth in the private wealth arena at the high end of the market, seeking to expand our international client base. Our second area of targeted growth was in the financial services industry - we had been successful in winning and retaining positions on bank panels and our relationship experience with retail and private banks was growing; we were starting to develop a real specialism. Our third target area was in the corporate sector - establishing depth to our team to attract larger and international businesses.

We decided to launch both plans in parallel - we would draw up a list of firms that we considered would match our culture, our client base and our ambition and put together our 'pitch'. We would begin to conduct very specific searches in the market for laterals and teams. The course was set.

Merger journey

Very early on, even before I took up the post of managing partner, we were offered the opportunity to speak with a London firm. At that stage, we had not refined our criteria for merger; we knew vaguely that strengthening London was the right thing to do and so met with the partners of the London firm with a lack of clarity around our intentions.

That process was unsuccessful in the purest sense, i.e., we did not merge with the firm. However, it clarified so many points for us as a new management team on the hunt for skills and a team to take ?us forward. It that regard, the process ?was invaluable.

First, we knew that merger should only happen if it moved the firm forward. Making the firm bigger wasn't enough. Strength, not size, was our aim. It also became clear how important our culture was to us as a partnership and a firm; it is a strong and collegiate culture and we did not wish to compromise that. Third, we were clear that the firm we found had to believe that moving work outside of London was an advantage - it would allow us flexibility in our client offerings.

The initial discussions threw up another interesting challenge, namely how big our London office should be - did it matter? Thomas Eggar is a firm predominately operating in the south of England; the strength of our regional network is important. London is an important piece of our offering, but we did not wish to be in a position where London was our head office. We all believed as a partnership that this was not the right model to move the business forward.

We were therefore in a position where we knew:

1. we would like to merge if we could find the right partner;

2. the right partner would need to share our culture and values;

3. the size of office to merge with should likely to be between £5m and £15m turnover if we were to maintain our goal of keeping the bulk of our practice outside of London;

4. the merger partner would need to bring either private client or corporate depth and would ideally also bring an introduction to an international client base; and

5. the new partner would see the value of a regional network.

?A further issue had been looming throughout the whole period - our lease in London was due to expire on Christmas Eve. We had no possibility of extending our lease as the building was to be pulled down. We needed to find new premises but also knew that we would like to be bigger within the year and had very little idea of what that might look like. That debate is an entirely different story - in the end we settled on serviced accommodation for one year. That gave us a timetable - if we had not merged by September 2013 we would need to enter into a new lease based upon what we had achieved by that date. The search was on.

We drew up a shortlist with a consultant - it was very short! Our criteria were focused. I hoped it was not too focused and promised myself that I would remain open to opportunities beyond our list. Through our consultant, we made our first call.

The week before our call, Pritchard Englefield had met as a group of equity partners to discuss their strategy. It had been agreed that: ?

• they should merge if possible;

• the firm should have a regional network (their German clients were receptive to this model);

• culture was important; and

• they wanted to retain the people who were valuable to them.

?Some important synergies were ?already evident.

Our first meeting was in January 2013. I attended with our chairman, Julian Chadwick, and three of their five equity partners, plus their finance director. It was immediately apparent to me that our cultures were well matched. It was a good, open, honest meeting where we shared our views and aims for the future.

The meetings developed from there fairly rapidly. At all times, I was checking for cultural fit, strength of client base and depth of skill - would they add to our offering, deepen it and bring in new clients? I never really doubted that they would. In late February, we introduced ?our equity partners to the Pritchard Englefield team. Our practice heads spent time with their counterparts working out the client base, the fit of the teams and whether the strategies of the two firms were complementary.

Due diligence took place and documentation was drawn up. Negotiations with the individual partners regarding the terms on which they ?would join the Thomas Eggar team ?took place and we worked out the ?financial consequences of the merger, including funding requirements for the merger investment.

We faced various challenges along the way (see box: Challenges of the merger).

 

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Challenges of the merger

• Confidentiality – we were very keen to keep the merger discussions quiet but, at the same time, both firms had various individuals who needed to be kept in the loop, who needed to help with the due diligence. We announced the merger to both firms on 29 April; a press release was embargoed until 30 April and on 1 May the merger happened. There were no leaks or market rumours – the news was well controlled and released on our own terms.

• Strategy – we were keen that any merger brought a strategic advantage to us as a firm. It was tempting to think only of the combined £10m turnover in London but, at all times, I kept making the management team reflect on our strategy and whether this took us further on our planned journey. If it didn’t, regardless of how nice the people were, we shouldn’t do it.

• Integration – we had to plan how the two separate sites would integrate into the new firm and quickly feel part of Thomas Eggar, while maintaining work levels and retaining clients and talent. Key to this was communication. We were constantly in front of the new London business from the announcement, keeping them informed, listening to their concerns and working with them to ensure that both firms were properly integrated.

• Partnership – it’s easy to forget that the partners in the wider partnership team who are not involved in the merger negotiations have less knowledge about the merger than you do. They need to be kept up to date; you need their support and buy-in and you need a ‘yes’ vote in the end! Again, communication was key. We upped the number of equity partner meetings during the period, provided regular updates and tried to answer as many questions as possible along the way.

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Post merger

Pritchard Englefield merged with Thomas Eggar on 1 May 2013. We have now spent a few months as a combined firm. The research, focus and tenacity in ensuring that the firms would complement each other and offer more to the market as a combined firm than as two individual firms has paid off.

Our aims for year one are to:

1. ?retain Pritchard Englefield's client base;

2. retain Pritchard Englefield's and Thomas Eggar's talent;

3. ensure the firms understand each other's offerings; and

4. integrate the two London offices.

?It is too early to say what our return on investment has been, but all signs so far are positive. The work is flowing between the two London teams and beyond. The Thomas Eggar teams have been introduced to Pritchard Englefield's client base (and vice versa) and our increased London presence has been applauded by the market.

The market seems to understand why we have done the merger: it has strengthened the firm's service offering and opened doors to an international client base. There is further refinement, focus and building to be done in London, but it is on its way. In just the first two months following the merger, our new London team maintained its revenue levels (as they were pre merger), we offered clients wider service lines and did our first joint pitches. Regular, open and honest communication has remained vital during this period.

Looking forward, we still have work ?to do in London; there may even be ?more team/merger activity if the right opportunity is out there. Our regional offices are also constantly being refined, structured and challenged to ensure we are focusing on the right markets, the ?right clients and the right types of work. Our premises requirements are being reviewed and we are constantly identifying the holes in our strategic picture and seeking the opportunities that will enable us to fill them.

?Vicky Brackett is managing partner at ?UK law firm Thomas Eggar ?(www.thomaseggar.com)