Mergers for law firms: Preparing for a merger

 

In the second in a series of three blogs looking at mergers in the legal sector, Moore and Smalley’s head of professional practices Karen Hain explains how law firms can make themselves an attractive proposition for other firms.

 

Once a law firm has decided that a merger is the right option for them, this is just the start of what can be the long process of ‘getting their house in order’ and making the firm as attractive as possible to a merger scenario.

 

There are number of issues to tackle here, but they will usually fall into one of three areas – staff, overheads and assets.

 

Scrutinising staffing structures

 

The knowledge that law firms really need to have when it comes to their staff is who is producing what – which teams are working flat out and which individuals may just be giving the appearance of being busy.

 

It’s important to have accurate management information to back this up. You need to know the cost structure behind every piece of work, how much is being billed, who are the main fee earners, and so on. Is client chargeable time being recorded effectively and is there a need to invest in better systems and procedures, such as case management software?

 

Only then can you make informed decisions on cutting out the deadwood and streamlining the firm accordingly.

 

Reviewing overheads and getting better value

 

You will also have to look at all other overheads across the business. Is it cheaper to outsource some functions such as HR, IT, marketing and payroll?

 

The profit and loss account needs examining in great detail so that you can determine how to maximise profits by reducing unnecessary expenditure or achieving better value for money on that expenditure.

 

Again, systems and procedures will need reviewing and bringing up to scratch. Do you have the right financial and reporting systems in place? It may require some investment to achieve this, but it’s a case of looking at the bigger picture and getting your business to a point where it is on a sound financial footing and is managing risk appropriately.

 

Recognising where the value lies in your firm

 

The advice I give to firms considering a merger is to have a think about what would go in a sales memorandum for the practice.

 

This means that when you’re having these discussions in the future for real, you know where the value is in your firm and how this will be communicated.

 

For example, I recently advised a traditional law firm where the two partners were looking to retire and sell their firm to a larger, more specialist law firm. On the face of it, there wasn’t much value in the deal for the larger firm. However, I helped the smaller firm identify the value it held in its wills bank, namely a list of potential clients and future probate work. It was also clear that the firm had some longstanding client relationships that were of value to the larger firm.

 

In the end we managed to get a good deal for the retiring partners, who are being retained as consultants to introduce the larger firm to some of the people who make up this valuable client list.

 

These are just some of the issues that need to be thought about when considering a merger. Look out for my next blog in which I’ll be discussing how the merger process works and my top tips for legal mergers.

 

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