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MERGERS and ACQUISITIONS

- Strategic Growth Through Mergers and Acquisitions -

In recent years there has been an unprecedented rise in the number of mergers, acquisitions, strategic alliances, and other forms of law firm combination. This trend has been fueled by a number of factors including the growing need for specialization and depth, client consolidation and the desire by clients to “converge” the number of outside law firms they deal with, the growing need for geographic expansion and reach, the increasing trend among law firms to diversify beyond pure legal services, and the growing investment needed to be a top-tier participant in marketing, recruiting, and technology.

Against this backdrop, law firms throughout the country are growing increasingly concerned that their current size and configuration may be inhibiting their long-term competitive success. These firms are coming to the conclusion that size, breadth, and depth are important prerequisites to attracting larger, more sophisticated clients, to handling larger, more complex matters, and to recruiting top-tier attorneys. As these firms look five or more years down the road, they see themselves falling behind unless they grow substantially. For these firms, the question is not whether to grow, but how. The mission of Coburn Consulting is to assist such firms with the formulation of growth plans and with the execution of strategies and action programs to carry them out.

The initial stages of any growth process follow some predictable lines. The first step is to decide if growth is the goal. If it is, the next step is to determine if the firm will grow organically through strategic lateral hiring or by way of a merger or acquisition.

  • Grow internally. Under this strategy, the firm adds lawyers as the need arises, hoping that its strategies for marketing and practice development will lead to increasing demand from their existing client base and from whatever new clients they are able to attract. While this is a prudent, low-risk strategy, it offers little hope of getting the firm to the size it aspires to be over the course of the next several years.
  • Grow by acquisition: This strategy commits the firm to making a series of acquisitions of smaller firms or group practices in selected specialty areas and / or geographic markets. Because law firm acquisitions can be both time-consuming and risky, it can be a long and difficult process for the firm’s management to complete enough acquisitions to satisfy the firm’s longer-term growth and size goals.
  • Grow through merger: The third alternative is to merge with another firm of about the same size. This is commonly referred to as a “merger of equals.” While finding the right merger partner is not easy, this alternative provides an opportunity to jump-start the firm’s growth strategy in a single transaction. Even though the size of the two firms may be different, the distribution of power and influence needs to be equitably distributed and shared between the two entities for a true merger of equals to work. In a merger of equals, the two firms in effect transform what were two separate entities into an entirely new one.

With any of these approaches, criteria and rationale for the expansion process will need to be clearly defined and endorsed within the partnership.

The Merger/Acquisition Process
Once it’s been determined that growth through merger and/or acquisition is the most appropriate path, the firm will enter into a four-phase process that when done well, results in a combination that benefits all the parties involved.

    Phase 1: Laying the Merger Foundation: With increasing frequency, law firms are being contacted about whether they might be interested in merging. At the same time, partners are asking their leaders what the firm’s position is on the merger issue. All too often, the firm’s leadership finds itself without a strategic context within which to answer these questions. The fundamental issue facing these firms is whether the level of growth they seek can be achieved internally or whether they need to jump-start their growth by partnering with an outside firm. With respect to the latter, there are several possibilities: (i) Acquire one or more smaller firms; (ii) Be acquired by a larger firm; (iii) Merge with a firm of equal size; and (iv) Form a joint venture or strategic alliance.

    Determining which of these options makes the most sense is not simple for any firm.  Reaching the wrong conclusion could have significant consequences for the firm’s future. Coburn Consulting will help your firm think through the alternatives and choose the strategy that best fits your firm’s vision, goals, and culture.

    The initial stage of the Strategic Growth Planning Process involves the articulation of goals and strategic rationale for growth, the development of growth and expansion criteria, and the formulation of internal consensus around whether growth can best be accomplished internally or whether an acquisition or merger would be preferable. This is an extremely important phase as it sets the stage for the entire process. The more thoroughly this initial phase is done, the more successful the rest of the merger process is likely to be.

    Phase 2: Candidate Identification and Exploratory Discussions: Coburn Consulting actively manages the process of identifying, assessing, and contacting potential merger / acquisition candidates. During this phase, we work closely with the firm’s leadership to review potential merger candidates and to identify those that meet the client’s criteria. Normally, the initial contact is made anonymously, and the client’s name is not revealed until the potential merger partner has been qualified and has expressed an interest in principle. Once a bona fide merger candidate has been identified, Coburn Consulting arranges one or more meetings between the Managing Partners / Executive Committees of both firms. The purpose of these exploratory sessions is to exchange information about their respective firms, to explore the potential synergies that may exist among the firms’ practice groups, and to weigh the potential benefits, liabilities, and risks that may result from a combination of the two firms. In addition to the benefits to the two parties involved, it is essential that the merger produce concrete and sustainable benefits to the firms’ clients in terms of broader or deeper capability, wider geographic coverage, lower cost, better service, faster delivery, greater efficiency, or any number of other competitive benefits.

    Phase 3: Due Diligence Process: The third step in the merger process is a thorough review of numerous financial, administrative, contractual, operational, and other factors that may be impacted by - or have an impact on - the merger. Included in this menu are leases, technology, compensation systems, administrative systems, firm name, partnership agreements, governance arrangements, and many others.

    Phase 4: Final Agreement and Implementation: After the final papers have been signed and the agreement has been ratified by the partnership, there needs to be an intensive process whereby the merger implementation workplan is managed and followed up. As a rule, it takes nearly a year before most law firm mergers really “take.”

Merger and Acquisition Services

Coburn Consulting offers pre-merger growth strategy formulation, merger planning, and merger search and implementation services. Specialized services include:

    Communication and education within the partnership on law firm merger trends and best practices; Articulation of and agreement on merger goals and strategic rationale;
    Definition of criteria and modus operandi for a “merger of equals”;
    Development of a profile of the firm’s strengths, unique features, client mix, and other “selling points” to be used in presenting the firm to potential candidates;
    Preparation of a merger “wish list” – the specific benefits that the firm would hope to accrue from a merger;
    Formulation of concrete merger evaluation criteria and screening checklists;
    Development of a merger search process, workplan, and timetable;
    Agreement and endorsement within the partnership / leadership on merger rationale, criteria, and process;
    Development of “master list” of potential candidates;
    Screening and prioritization of merger candidates;
    Initial contact (anonymous) with high priority candidates;
    Arrangement of initial meeting between leadership representatives from both parties;
    Assistance with and attendance at ongoing leadership discussions;
    Development and execution of a process to periodically inform the partners of the nature and progress of merger discussions;
    Assistance with the process for examining strategic and marketing issues and opportunities at the practice group level;
    Planning and execution of the financial, legal, and operational due diligence process;
    Assistance with merger discussions and negotiations;
    Planning and execution of the post-merger integration process.

As consultants, Coburn Consulting can represent either one party or both parties, as advisor to the overall transaction. Our pricing consists of an agreed-upon hourly fee for our services through the negotiation process plus a modest success fee upon the conclusion of the transaction to the client’s satisfaction. Coburn Consulting is prepared to discuss both the completed mergers it has been involved with as well as the merger initiatives that for various reasons were called off during the process.

Related Articles
“Merging Firms Ahead – Law Firm Mergers of Equals,” Legal Management (May/June, 1998)

“Do Potential Merger Synergies Actually Lead to Enhanced Revenue?” Of Counsel (January, 2002)

“Mergers that Click,” Legal Management (May/June, 2001)

“To Merge or Not to Merge – That is the Question,” Capital Connection (June, 2002)

“Mid-Sized Firms That Took the Merger Plunge,” Of Counsel (January, 2004)

 

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