Prioritising client interests in law firm mergers and acquisitions

In a recent directive, solicitors have been strongly reminded that their clients' interests must remain the primary focus during any mergers and acquisitions (M&A) involving their firms. This reminder aims to ensure that the integrity and trust in the legal profession are upheld amidst structural changes.

Mergers and acquisitions are increasingly common strategies for law firms seeking growth and business resilience. These strategies enable firms to stay competitive, offer a more comprehensive range of services, and maintain financial stability during challenging economic times. Despite these benefits, the Solicitors Regulation Authority (SRA) has emphasised the critical need for firms to adhere to specific requirements to safeguard client interests throughout the M&A process.

Key Reminders for Law Firms:

1. Effective Governance: Firms must ensure that their governance structures remain robust and effective even during periods of growth and change. Ineffective governance can jeopardise client interests and trust.

2. Clear Communication: Transparent communication with clients about the changes occurring due to a merger or acquisition is crucial. Clients should be fully informed to make educated decisions regarding their legal representation.

3. Proper Document Management: It is essential for firms to retain and store all necessary client documents appropriately, ensuring accessibility and security.

4. Prioritising Urgent Matters: Identifying and prioritising urgent client matters during transitions helps maintain service quality and client satisfaction.

5. Client Account Reconciliations: Regular and accurate reconciliation of client accounts ensures financial integrity and transparency.

6. Due Diligence: Both the acquiring and the selling firms must conduct thorough due diligence on each other. This process helps in understanding potential risks and ensuring seamless integration.

Paul Philip, SRA Chief Executive, highlighted the frequency and significance of M&A activities in the legal sector, noting that approximately 100 mergers and acquisitions occur annually. While acknowledging the legitimate benefits and reasons behind such activities, Philip stressed the challenges that can arise, particularly when firms undertake multiple acquisitions in a short timeframe. These challenges include difficulties in business integration, aligning organisational cultures, and maintaining high service standards for an expanding client base.

Philip's statement underscores the importance of managerial diligence in preventing acquisitional growth from leading to ineffective governance structures, inadequate systems, or poor controls. Such deficiencies can harm clients and erode trust in the legal profession.

In conclusion, as law firms pursue mergers and acquisitions to enhance their competitiveness and resilience, it is imperative that they remain vigilant about maintaining effective governance, clear communication, and prioritising client interests. By doing so, firms can navigate growth while upholding the standards of service and trust essential to the legal profession.