Surviving mergers: 15 tips for managing law firm merger negotiations

 

If you want to know what it feels like to be at the eye of a storm, run the negotiations for the merger of law firms.

Let’s assume that you are the leader of a team charged with negotiating a merger. You have identified your target and it appears to match your strategic aims for the new business.

Merger negotiations can be stressful and demanding. The following 15 tips are drawn from 15 years in legal management, plus more years as an M&A lawyer, and will help you to survive the process.

1. Take your legal hat off

Lawyers love an argument. Businessmen love a solution. As soon as you become involved in a merger, you must take your legal hat off and put your business hat on.

If there is a strong business case for the merger, the legal issues should fall ?in place and should not prevent the ?deal from completing.

2. Have a small team

Small is efficient. It is vital that the team you put together to lead the negotiations is kept small. Restricting the team to, say, three people ensures that communication is easy and decisions can be made swiftly.

The right people have to be in your team. They need to be people who have a detailed understanding of your business, have a commercial approach to problems and have time to devote to the project.

There is a temptation to get too many people involved, to try to put a representative of each area of the firm ?onto a committee. Inevitably, this creates ?a lack of focus and slows down the process and decision making. A group of busy partners may not be able to get together when needed.

3. Trust each other

Honesty is the only way. As the leaders of your firm and your target firm learn more about each other’s businesses, it is important to build strong relationships. You will be spending a lot of time together and working towards a common goal. If the members of this group do not trust each other and do not have a common purpose, then the discussions are going to founder.

As the process develops, it will be for this key team to act as advocates for the project and to persuade both businesses to become one new business. You must be open with each other, but also positive about what you want to achieve together.

4. Ask difficult questions

If you are not prepared to ask difficult questions, you are not going to have a serious discussion. And, if you are not prepared to answer difficult questions, there is a problem with trust. Don’t be afraid to ask the difficult questions ?from the beginning.

If you have a true understanding of your business, you should not be surprised by any questions raised by your target. You should know more about your own business than the other side does and be able to anticipate what is going to cause them concern.

The sooner these issues are on the table, the sooner they can be resolved or the parties can part as friends.

5. Read the accounts early

While having a vision for the new business is vital, making sure the nuts and bolts of the finances fit together is also essential.

Long-term liabilities like leases or pension schemes can kill a deal stone dead. Don’t get enthusiastic about the opportunities only to find that there is a fundamental problem with the books.

Exchange accounts, read them (get professional advice if you need it) and have an open conversation about them as soon as possible. The finances form the foundation for the new business and ?need to be solid.

6. Project manage

Lawyers are trained to dig into problems in a very focused way, so rarely have good project management skills.

Some merger discussions just drift on and on, and then collapse because the parties are too busy to give it the time that is needed or cannot focus on a process that moves the project forward.

The key project management skills that you need for merger negotiations are simple. Plan your meetings. Have an agenda. Go into each meeting knowing what you are trying to achieve from it. Come out of the meeting with agreed action points and a programme for ?the next steps.

7. Treat each other as equals

You and your target are not going to be the same size. Often, one party is going to be significantly smaller than the other.

But, if you are genuine about a merger, you will treat each other as equals. You will not talk about one firm joining the other or taking it over. You will talk about the creation of a new business with its own vision and values.

You must find the best elements of both businesses and combine them for the benefit of (mostly) everyone. The smaller firm may, for instance, have a more up to date and superior IT system which is going to be better for the new business to adopt.

If what the parties are really considering is not a merger but a takeover, then the sooner than is understood and talked about openly, the better.

8. Don’t look at another deal

Courting one party while dreaming about another will only lead to trouble. It is sensible for you to start by having cups of coffee with a number of different parties at the same time. This is a process of elimination and selection.

But, at some point, you cross a line and then you and your target have to make a commitment. This is normally when you sign a non-disclosure agreement which should contain exclusivity arrangements.

After that, don’t even think about alternative targets. Even if discussions are not going well, thinking about a Plan B is not going to help. That will distract you and undermine the current discussions.

It may be that, at some point, you conclude that the discussions must come to an end. At that point, you part friends. Then you stand back, review where you are, consider what you have learnt and decide what to do next.

9. Don’t be afraid to get help

Actually, lawyers don’t know everything. Even if you have helped clients through a merger or acquisition, you will find working on your own deal a very different experience. You will have a completely different perspective and, while this will help you with advising clients in future, it can be disorientating.

So, do not be afraid to get help. If ?you employ professional managers who have had a life outside of the law, use ?their experience.

There are also many consultants out there who can help you. But, they come with a variety of skills and experience, so make sure you get a personal recommendation. Also, be cautious of advisers who are also matchmakers because sometimes they can be too anxious to sell you a Plan B (see above).

10. Prepare for gossip and rumours

Everyone loves to gossip. With the amount of merger activity going on in the marketplace at the moment, there are a lot of rumours around. You have to accept that, at some point, people are going to believe, rightly or wrongly, that you are talking to another practice.

More damage can be done to your firm by rumours within the practice than those in the marketplace. While it is not wise for you to make a public statement too early, at some point you will have to deal with the rumour mill in your buildings.

At an early stage, you and your target should prepare statements to issue both externally and internally. If you do not have sufficient PR expertise in house, then there are a number of specialist consultancies that can advise and act as the point of contact for any media enquiries.

It is very important that all queries, whether from inside or outside the firm, ?are dealt with by a single source. Not ?all colleagues are good at dealing with ?the media or even with anxious staff. Indeed, some may blurt out unhelpful comments when ambushed by journalists. Make sure you communicate a single, consistent message to avoid confusion outside the firm and worry inside ?the firm.

11. Decide on a new firm name

This is not as difficult as people think. Provided you are businesslike and understand that a discussion around the new firm’s name is about discussing goodwill, a solution can and will be reached.

Some partners may be sentimental about a name, but clients are not. Many firms have a name that is not even used by the client because it is abbreviated or shortened to its initials.

Do not be afraid to lose the firm’s name. What your clients call you is what constitutes the firm’s goodwill.

12. Communicate with partners

This is a hard one. Once you have got to the point where you have constructed a strong business case and the two firms’ leadership teams believe that the merger should go ahead, the next step is to bring your partners on board.

The process of communicating with the partners is possibly the most difficult part of a merger. A small group of likeminded people can find a common cause and solutions to problems. But, the more people that are involved in the process, the more difficult it can become.

So, your negotiating team have to lead and be strong advocates of the project. This does not mean that, as more partners become involved, valid and important issues will not be raised.

But, lawyers are conservative by nature and very cautious of change. Signing up in principle to the abstract concept of a merger is one thing. Being faced with the reality of a new venture is quite another. Some partners will feel threatened, particularly if they are in the smaller firm.

On the other hand, many partners will embrace the change and immediately see opportunities. Plan who to tell, when to tell them and what you are going to say. It will probably be better for you to bring more partners on board slowly, starting with those who lead opinion.

You must have a detailed and convincing business plan for the merger. You will be questioned about the plan and, if it looks as if you have not properly thought it through, you risk losing the confidence and support of your partners. Lead this process.

13. Do it for the business

While your partners as the owners of the business are a vital constituency that need to be convinced of the benefits of a merger, the reason for agreeing to merge must be because it is good for the two businesses, not simply good for the majority of the partners.

Solicitors, support staff and clients all have a stake in your business. The project has to make sense for them ?as well.

14. Prepare for integration

You may think that merger negotiations are difficult, but the real hard work is the integration process. Putting two businesses together is a complicated enterprise that takes time and involves integrating IT systems, databases, buildings and people.

So, as soon as it looks like your discussions are going to lead to a ?merger, create an integration committee staffed by professionals from each firm to plan and prepare for integration. You should appoint a member of the core team to lead it.

15. Be ambitious

Surveys of the legal market tend to show that virtually all firms are considering a merger, but that the majority would only consider a merger with a smaller practice. If this is true, it means that there can be very little activity in the marketplace and may explain the slow pace of consolidation in the legal profession.

There has to be a smaller partner in any merger discussion – do not be afraid of being it. But, be ambitious. Looking for a merger partner that is just like your firm is not going to create a new dynamic business. It will just increase the size of the business.

All firms are different and have different strengths and weaknesses. You need to harness for the new firm as many of the strengths of both businesses as possible, while dealing with as many of the weaknesses as you can.

The cliché that two and two must equal five is absolutely true. If you put two businesses together, but believe that they will not make a better business, you are more likely to accentuate the weaknesses of both businesses. You will do no more than create a bigger mass, without achieving the targets of profitability. Be ambitious!

Learning from clients

We all know that many of our business ?clients see mergers and acquisitions as a ?way of life and a way to build more successful businesses. We tend to be more cautious.

Many of our clients create a business with the intention of building it up and then being acquired. They go through these processes and profit from the sale.

Our business clients will see a merger as a positive step for their adviser and support it.

As a profession, we need to learn from our clients and not be afraid of a merger, but rather treat it as a process that will strengthen our firms.

Guy Vincent is a partner and the former managing partner of UK law firm Bircham Dyson Bell (www.bdb-law.co.uk)

---