Mergers for law firms: Is a merger the right thing to do?

In the first of a series of three blogs looking at mergers in the legal sector, Moore and Smalley’s head of professional practices, Karen Hain, looks at the issues driving an increase in mergers.

 

Law firms are being forced to ask themselves some tough questions as increased competition and other legislative changes put the squeeze on parts of the legal sector.

 

One of the big questions for firms in this position is whether they should consider a merger. Three key drivers of this are retirement and succession planning, the need to diversify, and the wider issue of risk management.

 

Retirement costs may force a merger

 

The sudden need to consider a merger is an issue I see time and again in traditional practices with an ageing partner group and where there is a lack of new blood to take over the firm.

 

The days of law firms waiting for someone to come and buy them out have gone as increased competition erodes the value in many traditional practices. This is coupled with the trend of lawyers leaving firms to start up their own practice, rather than buy into another firm and take on all that overhead and risk.

 

Some firms in this situation plan simply to shut the door when they retire, but for many the costs of making staff redundant, dealing with dilapidation issues on the building, and taking out run-off insurance cover are just too high. This makes a merger much more sensible.

 

The need to diversify

 

Then there are the firms who may wish to examine a merger to reduce the risk inherent in the sectors they operate in. If we look at a traditional high street law firm, its work is likely to be higher volume, lower margin work, such as conveyancing and will writing, which is being threatened by new entrants to the market.

 

Again, the option of going in with another firm with more specialist services, where they can benefit from better economies of scale, is suddenly very appealing.

 

The big question here is how will they make themselves attractive to a potential merger firm? How do they convey where the value is in their firm and what their USP is? I will come onto this in my next blog.

 

Identifying a merger need through risk management

 

It’s not just diversification that drives mergers. The wider issue of risk management, where firms look at how they can reduce risk now and in the future, is also a factor.

 

Very often this process throws up the possibility of a merger as firms implement better housekeeping practices and make themselves more attractive to other firms.

 

I will talk in more detail in my next blog (released next week) about how law firms can put their house in order and boost their chances of a successful merger.

 

For more information and advice on any of the matters raised in this blog, please contact me on 01772 821021 or karen.hain@mooreandsmalley.co.uk