November 14, 2005
Law Firm Merger Success Depends on People
If you don’t have Adam Smith on your Favorites List you should. Bruce MacEwen’s blawg is “….an inquiry into the economics of law firms.” His November 1, 2005, post dealing with law firm mergers is a must read. And, his November 12, 2005 post adds insight from a well practiced firm leader, Ralph Baxter of Orrick.
Law firm mergers are often bet-the-firm strategies. Firms that do not have a track record of successful merger experience need guidance from experts seasoned in the experience. Do not attempt to do this on your own. Bruce dives into the financial aspects. You not only need to have an in-depth understanding of each firm individually, you must investigate and anticipate the impact of the proposed marriage—conflict and other issues may change the post-acquisition landscape so that 1 plus 1 only equals 1½. Assuming the proposed merger passes the financial test, the firm still faces the risk of a potential clash of cultures.
Tom Clay at Altman Weil, Inc. writes, “Altman Weil is called upon to help law firms in many different areas, and yet it is striking how often we find that the root of the problem is the same—people. The right people in the wrong jobs, the wrong people in the partnership, and a lack of awareness or will to solve the problem.” Mergers just compound the people issues.
Jim Collins, author of Good to Great puts it this way, “First, get the right people on the bus.” Having the right people in the right slots has more to do with a law firm’s future success than anything else. Mergers, from a people stand point, are often “pigs in a poke”. Too often the acquirer really doesn’t know who they are getting. Mergers often add too many wrong people all at one time. The resulting class of cultures and personalities can sink what had been a well-crewed ship.
While Ralph Baxter sees advantages and reduced risk from mergers that add entire practice group teams, few law firms have the opportunity to be as practiced at the merger business. The fact is the majority of law firm mergers (and business acquisitions in general) fail to deliver on expectations. Opportunistic deals almost never deliver. If you have a good thing, be wary of the quick growth promise of a merger opportunity. You are betting the firm.
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Filed under Firm Culture, Planning by Tom Collins