With further consolidation on the horizon, Greig Rowand provides tips for law firms on how to ensure a smooth merger.

The economic downturn and changing market have combined to transform the legal landscape across the UK, and consolidation in Scotland’s legal sector looks set to continue. At Henderson Loggie we’ve advised on a number of legal mergers - and even on some demergers - and we have learned a few things about the pitfalls to watch out for. Here’s our shortlist of things not to do when contemplating a merger.

Don’t assume it is ‘going to be alright on the night’.

Successful mergers need planning and strategic focus. They don’t just happen. A plan helps to identify early on any likely stumbling blocks and issues. Clearly defined roles and responsibilities for those involved in the merger process and negotiations provide a better chance of avoiding the whole process grinding to a halt because of the difficulties in reaching decisions. Too often some of the big issues on mergers are ‘parked’ during initial discussions because they fall into the “too hard” category. Whether that be dominant personalities within the partnership, or one firm remaining in an independent office, it is likely if ignored these issues will come back with vengeance just as you are trying to complete the deal or implement the merger strategy post completion.

Don’t assume everyone is a winner and there are no losers.

Mergers can work and transform two businesses into one bigger and better law practice that offers additional services and specialisms to clients as well as more fulfilling work and career opportunities for staff. But there are always some casualties, whether that be a reduction in the number of support staff or loss of title for certain individuals - “Joint Head of “ rarely works. Recognise this and agree a plan of how these “casualties” are to be handled.

Don’t ignore staff and clients

Merger talks can often be shrouded in secrecy and on a “need to know basis”. Staff and clients are the lifeblood of all professional service businesses and communication is key. Remember, it is just as important to keep administrative staff up to date with what is happening as the lawyers in the firm.

Don’t assume because it is called a merger that it is one

Often the combination of two disproportionately sized firms is described as a ‘merger’. In reality it’s a takeover but the merger spin is put on the deal in an attempt to maintain professional reputations or provide reassurance to the client base of the smaller firm. That’s fine as long as behind the scenes everyone recognises that it is an acquisition with an acquirer and a ‘seller’ and acts accordingly. Lawyers can be fiercely independent and protective of their practices but there is no shame in being acquired.

Don’t be afraid to stop

Once we are underway it can sometimes seem difficult to stop the merger process as both parties start negotiating on the detail and forget the big picture. Be brave and if it is not working or it does not make commercial sense– stop!

Don’t assume because a deal is signed the merger is done

Lawyers help clients complete transactions and they are good at it, often working hard to deliver a completed deal to a challenging timetable. The key personnel involved however have got to replace the lawyer hat with that of a business owner. Don’t focus on completion. All of the work is just about to begin post completion! Successful mergers depend on successful integration which can be achieved by establishing a shared culture and a detailed integration plan with tasks and actions monitored and implemented by a management team.

Don’t let the numbers drive the process

Yes, that’s right. An accountant telling you not to focus on the numbers! Of course assessing the relative profitability of the firms, their respective borrowing positions, comparable capital contributions from partners, extent of recoverability of debtors and WIP, extent of any ‘hidden’ or off balance sheet liabilities are all important, but is that why mergers don’t work? Occasionally it can be but research shows that factors such as poor cultural fit, lack of planning and failure to integrate are the principal reasons cited for an unsuccessful merger. Address these key issues early on and then you can get an experienced accountant to advise you on how to sort the issues with the numbers.