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To merge or not to merge- is that the question?

According to the Law Society Gazette, the number of law firms opting to merge has reached an all-time high.

Research shows that the number of mergers in the past year is 60% higher than four years ago.

There are thought to be several motivating factors which have accelerated the number of mergers taking place across the UK:

1) The aftermath of the Jackson reforms: The ban on referrals, changes to conditional fee agreements and introduction of more ‘appropriate’ costing has severely affected income for law firms and made them more inclined to reassess their options

2) Banks becoming more wary of law firms: According to recent media coverage, the number of firms going under is on the increase and in order for firms to secure the funds they need, they will need to demonstrate long-term financial stability

3) Economies of scale: A successful merger can help to reduce overheads and increase revenue per unit.

Many of us are asking, is a merger the answer to all law firms’ problems?

Since the high profile collapse of firms such as Cobbetts, Atteys and Blakemores, some law firms feel uncertain about their future in the industry. With further news from the SRA that 30 of the top 200 law firms are in serious financial difficulty, firms are looking for ways to increase revenue and reduce costs.

For the most part, law firms used to consider mergers when they wished to expand their business, benefit from additional skills and assets and improve the firm’s competitive position.

However, according to the Law Society Gazette, the merger trend is the result of a continuing weak economy and 83% of top law firms think a merger is likely in the next two or three years.

When implemented on a strong foundation of careful planning and preparation, mergers can benefit law firms to a huge extent. They can:

 • Improve a firm’s competitive position

 • Help facilitate expansion into other geographical regions

 • Increase specialisation or assist with obtaining additional expertise

 • Increase client base

It is understandable that law firms across the UK are looking for long-term solutions to solidify their place in the market. While a merger does offer obvious cost saving and cross selling potential, it is worth approaching them with a greater amount of trepidation.

According to research, one third to one half of mergers fail to meet expectations. The fact of the matter is, there are a million different things that can go wrong.

Firms may experience issues when they:

 • Fail to agree on, understand or reinforce an articulated growth strategy

 • Fail to implement a structured negotiation process; many firms get weighed down by the tiny details and administrative impossibilities

 • Fail to negotiate and agree upon a new vision. Many partners are clouded by the vision of their old firm; the new firm needs to be regarded as a separate entity with fresh ideas and philosophies

 • Fail to recognise the other firm’s partners as members of the same team, rather than the opposition

 • Fail to resolve difficult issues at the outset, such as the name of the new firm or the organisational structure

 • Fail to integrate and execute against the idea of the new firm and its strategy

So to merge or not to merge? Is that really the question law firms should be asking?

While a merger could be the life raft law firms need, especially in today’s economy, it is extremely important that firms consider and weigh up all factors involved.

Ultimately, what it all comes down to is not the what but the who. Whether or not the merger will be successful is entirely dependent on the firms involved and their ability to transform and integrate into a robust and stable unit.

They don’t call it a risk for nothing.

 

Sources

http://www.lawgazette.co.uk/news/lawyers2you-latest-victim-pi-bloodbath

http://www.lawgazette.co.uk/news/merger-talks-reach-record-high-firms-battle-cuts

http://www.kentonline.co.uk/kentonline/news/Two-law-firms-to-merge-3482/

http://www.smocksterling.com/law/pdf/the_seven_deadly_sins.pdf

http://www.chambersstudent.co.uk/Articles/Newsletter/318