It is useful for each department to have its own strategic objectives and a person in charge to coordinate the efforts of all its members.
I. There is only one good reason to merge with another firm
Whether in the legal sphere or in the business world in general, a large part of the merger attempts end up failing. Many experts look for the reasons for these failures in the multiple practical problems that arise when materializing a merger operation between two entities. I do not share this point of view. I firmly believe that, however complex it may be, the work of materializing a merger should not jeopardize the project as long as it has a strong justification. Failures usually have their origins in the first moment of the project, when it is born in the imagination of a manager. Projects that fail do so simply because they are the consequences of wrong reasoning. Mergers without truly business justifications end in disaster.
The thing is much simpler than it seems. After all, there is only one good reason to merge with another firm. Every merger must meet a basic requirement to have a reasonable chance of success: it must be a way to achieve a strategic objective more quickly than by internal development.
If an office has to carry out an activity in the field of intellectual property to fulfill its strategic objectives, it may reasonably consider acquiring or merging with an office that has exactly the characteristics (number of lawyers, type of clients, business culture) that the department you should create.
If, to better serve its clients, an office must create a new office in another city (abroad or not), it can legitimately consider the possibility of acquiring or merging with an office in this city that meets the characteristics of the office that should create.
If a firm thinks that it is not large enough to achieve the critical mass (size of the firm expressed in number of lawyers or in number of cases dealt with or in turnover) to compete in its market, it can imagine acquiring or merging with a firm that has fundamental characteristics similar to its own (values, strategic objectives, etc.). Critical mass is an important element in achieving visibility in the market.
In these three illustrations, the office that begins the concentration project pursues a clearly identified strategic objective. Obviously, mergers must be analyzed from a double perspective: the firm that drives the project and the firm that participates in the project. Both firms have to comply with this fundamental requirement. It is not enough that the driving agency take strategic advantage of the operation. The operation should be for both parties a shorter path towards achieving their strategic objectives.
Now that we have identified the only valid reason to undertake such a complex and costly process as a merger between two firms, let's list the wrong reasons that we often find at the origin of mergers:
Because everyone does
Mergers are like bad news, they always come in waves. I think the waves of mergers have two explanations. On the one hand, a rational explanation: a few mergers can change the critical mass in a market and, by simple effect, it dominated "forcing" more firms to merge so as not to get off the hook. And, on the other hand, a "viral" explanation. Sometimes mediocre managers have no other strategy than mimicry: my competitor changes the logo and I change the logo too, my competitor signs an agreement with a Chinese firm and I too, create a marketing department and I too, merge… and I also!
Because business is stagnant
On many occasions, the element that drives a merger project lies in the stagnation of an office. The managing partner of the firm facing difficulties thinks that merging with a firm that is going through a better time is the solution to its problems. At first glance it seems like a good solution, at least for the firm in crisis… However, it is a fictitious solution. If a firm in crisis manages to “deceive” another, the deceit ends up coming to light. The merged entity will face serious tensions and will most likely be in an explosion. In the best case, the two offices will end up separating. In the worst case, the partners will each go their own way, trying to enter a pre-existing structure. However,in all cases, much time and money will have been lost in the adventure.
In order to isolate a partner
Sometimes large disparities in billing, ethics and management ideas lead to the marginalization of a partner. In small offices, it is sometimes very difficult to get rid of a partner. Quite simply, in a two-partner office it means destroying the structure and jeopardizing even the most profitable partner's professional future. To solve this type of problem, some people come to believe that a merger can be a good solution: “we are two, we merge with these four and so I can organize a five-on-one confrontation and get rid of this unproductive partner. " The success of any process of rapprochement between two entities depends on the trust that exists between the managers (partners) of these.Bringing structural problems to the new entity is the best way to destroy trust and sabotage the new project. The offices that merge must go to the "wedding" sanitized. The problems of each part must have been solved beforehand. Building a new project is a complex task. Building a project with bricks about to break is an impossible task.
Because we get along very well
We have all talked one day about setting up an office with friends from the faculty. In itself, the friendship between partners cannot be considered as an obstacle to the construction of a successful business project. Recent graduates who have the courage to set up an office as soon as they have finished their degree usually use the criteria of friendship to choose their partners. In this case, this criterion is neither more nor less valid than any other. However, pretending to merge two firms for the simple fact that their partners are friends is an aberration. The reason for the merger has to be strategic. Friendship can only be a secondary criterion that enters the account line when choosing between several options (all of them valid from a strategic point of view).
II. Who to merge with?
Know what it takes
Once the firm has developed its strategic plan, it knows where it wants to go and the elements it has to gather to reach its destination. As we have already mentioned, to gather these elements, the firm can, on the one hand, trust itself and grow little by little (we are not necessarily referring to the number of lawyers) and, on the other hand, it can search for a firm that brings together some of these fundamental elements that are missing.
Know what can be offered
In order to sign an agreement with an office, it is not enough that this office meets the conditions we have described. Our own office must have something to offer. You must gather the essential elements that another office needs. Consequently, law firms must do introspective analysis work and design a faithful portrait of who they are.
Track the market
Once the list of fundamental characteristics that the office sought must meet has been established, the search has to be launched. If you are looking for a firm established in your own geographic market, you can perfectly do the job of identifying potential candidates internally. The normal thing is to entrust this task to the partner with more active experience in the most relevant area of law. If you are looking for an office specialized in labor law to reinforce this underdeveloped area in your office, it is normal to ask the partner responsible for it to coordinate the identification work, since it is the one that knows the market best.
When looking for an active firm in an unknown geographic market or in an area of law that none of the partners in your own firm knows, it is advisable to trust an outside expert. For this identification job, a merger expert is not needed. You need someone who knows this specific market well. It can be a specialized journalist, a headhunter or any other professional in the legal sector that acts precisely in this market.
It must be recognized that this identification task can be very complex for small offices. There are thousands of small offices and it is very difficult to identify from among all those that could be good partners to create a new structure.
Identify the "best candidate"
The Candidate Identification Officer prepares a comprehensive list of potential candidates identified throughout the market tracking process.
The top management of the firm examines this list to rule out candidates who present serious incompatibilities (professional ethics, personal relationships, etc.).
Once this pre-selection is made, potential candidates who have not been discarded are contacted. This first contact is by definition very "superficial". It is about finding out which law firms are potentially interested in joining forces with another law firm and having access to a few basic data that may not have been found in the previous phase: profile of each of the lawyers, turnover figure (global and by area), etc.
For each office, a synthetic file is prepared that gathers the information obtained and an evaluation sheet based on criteria that are as objective as possible. Each partner will have to fill out this form. Once a candidate ranking has been established (result of the average of the partner evaluations), the partners can meet to choose the best potential candidate: the firm that has shown interest, has received the best evaluation and has not elicited the veto by any partner.
III. Evaluate the merger project
Once the candidate has been identified, the work philosophy changes completely. We went from a horizontal and quantitative work of tracing to a vertical and qualitative work of analysis. The firm will try to assess the quality of the merger project: does the merger offer a real business development opportunity? What do we gain and at what cost?
From a very practical point of view, we recommend that law firms use a well-known tool: SWOT analysis. Each office fills out a two-by-two matrix and identifies its Weaknesses (deficiencies today), Threats (deficiencies for the future), Strengths (competitive advantages today) and Opportunities (potential competitive advantages for the future).
For a merger project to make sense, it is essential that the SWOT of the merged entity be “better” (fewer weaknesses and more strengths) than those of the entities to be merged. It is advisable to focus attention on the shortcomings and competitive advantages of today and not so much on those related to the future. Indeed, it is very important that a merger produces positive effects in the very short term. It is very difficult to involve people, get investments and sacrifices when the benefits are only potential and far in time.
When doing this evaluation work, it is recommended to apply the principle of prudence embodied in 3 basic rules:
• Undervaluing opportunities (being further away in time, these competitive advantages are more uncertain)
• Assess the cost of the merger (the costs of designing the new logo, the new website, the new stationery, the move, the communication campaign, the activities organized to “unify” the teams are often forgotten), etc.)
• Underestimate economies of scale (it is not as easy as it seems to save costs by cutting documentation or support staff costs…)
The evaluation work would not be complete without a complete financial audit. It is advisable to hire an external auditor to carry out this very sensitive mission: to establish an X-ray of the offices from a financial point of view (costs, invoicing, indebtedness, collection ratios, etc.). Without this financial phase, it is impossible for the two entities to assess the price of the merger and, later, establish a balance of power.
This entire evaluation process requires an ever closer collaboration between both offices. It is a very good opportunity to see if there is a compatible work philosophy, common values, good interpersonal relationships, etc. As the process progresses, the information shared is increasingly sensitive and the trust that the parties have between each other is tested.
Often the evaluation process allows to uncover problems and / or obstacles. It is essential to distinguish between the problems / obstacles that will be solved by the same merger (for example, the deficit of experts in an area in an office) and those that will not be solved by it (for example, the billing deficit of a partner or the opposition of a partner to the same merger process).
The latter must necessarily be resolved before negotiating the merger. It is very important that each office presents itself to the “clean” negotiation of problems / obstacles. It is not reasonable to postpone the resolution of these problems. It would mean accepting that the new project begins with a liability and would seriously jeopardize its future.
IV. How to negotiate the merger agreement?
Negotiating a merger agreement means agreeing on how the new structure works. It is about finding together the answer to the question: “How will the new office be managed?
A merger between two "companies" is a complex situation and the points to be negotiated are numerous. However, we can highlight four key elements that are usually those that generate tension and often cause the failure of the merger project. When the representatives of the firms reach an agreement on these four points, the chances of reaching a global agreement rise.
Name of the new office
At first glance it seems like a trivial matter but it is not. The fact that one or two firms have to give up their name (which often includes the names of some partners) makes this matter very emotional and therefore very delicate. It is advisable to deal with this matter as soon as possible. It would be a shame to save it for last and that this matter ends up ruining months of work and effort (a situation that has occurred many times).
Command structure
When two firms decide to join forces and build a new structure, two teams of managers begin to work together to carry out this rapprochement project. Once the new structure has a life of its own, it needs its own management team. How to compose this new team? How to organize the management of the new office?
Basically there are three options:
(1) Collegial management: the firm puts at its head a duo with a lawyer from each founding firm. It is imperative that the two chosen attorneys understand that they do not represent stricto senso to the attorneys of their home office. They are there to manage a new project. However, two are chosen so that each partner in the new project has the peace of mind that someone they know very well is in command.
(2) Individual management: the firm chooses a single manager. The managing partner is chosen by vote among the partners of the new office. This option allows you to send a very strong drive signal. However, he is more radical and by definition, many of the firm's partners will have a “boss” that they do not know very well, which may reduce their commitment to him.
(3) Mixed solution: beforehand the firm decides to start with a collegial management of between one and two years before choosing its managing partner. This solution combines the advantages of college management in the initial phase and those of individual management once the project is well underway.
In the event of a merger between medium or large firms, the command structure will not be limited to a senior leadership. The most logical thing is to support this leadership with several specialized committees (HR, R&D, etc.). It is recommended that each specialized committee have members from the two merged offices.
For each management body of the new office, the method of appointment, the duration of the mandate, the functions and the obligations must be precisely defined. The key to success lies in the clear definition of the separation of powers between the top management, specialized committees and the general assembly of partners.
Finally, the organization of the firm's departments cannot be forgotten. It is useful for each department to have its own strategic objectives and a person in charge to coordinate the efforts of all its members.
From a practical point of view, it can be very useful to hire an external consultant to help partners in these structure design tasks. The presence of a third party (neutral) allows the negotiation of these aspects to be reduced to a confrontation between two proposals that are mere replicas of the structures of the founding offices. The merger is an opportunity to improve management. It should not be missed.
Obligations and objectives of the partners
For a merger to make sense, it is essential that it be part of a business strategy. Consequently, the work of the partners, who are the engines of the firm, must contribute to this same commercial strategy. It seems logical that if several partners are associated to facilitate the achievement of objectives, these same partners each have a role to develop very well defined in order to achieve these objectives.
In too many circumstances partners have only financial goals (billing, profitability). To ensure that partners work in a coordinated and efficient manner for the execution of a business strategy, it is convenient that they have more complete obligations and objectives: invoicing, training of lawyers, cross-selling, marketing, etc. The best way to fully exploit the commercial potential of a merger is to diversify the evaluation criteria of the partners.
We want to stress the importance of cross sales. One of the most common justifications for merger projects is the desire to expand the offer of services. This objective makes sense only if the firm is willing to make the necessary efforts to sell all of its services to all of its clients. This means radically breaking with the customer appropriation habits that partners often have. Each partner must do everything in their power to ensure that "their" clients contract the services of other active partners in different areas of law. This is never accomplished on its own. This collaboration needs to be organized.
Members' remuneration
You can hardly imagine a more delicate issue than that of partner remuneration in the context of a merger. In all law firms, the profit-sharing formula is the result of successive negotiations throughout history. When two firms decide to join together, a fight begins in which each group of partners and even each partner defends their own interests.
No two situations are alike and consequently no universal solutions can be proposed. In each case, this matter will have to be negotiated taking into account the circumstances of the current merger and creativity must be demonstrated. However, all negotiations must have two objectives: fairness and transparency.
Equity
It is about rewarding each according to their merits. Merits are not measured exclusively in invoiced euros. It is very important that the evaluation criteria allow to cover all the activities that contribute to the development of the firm towards its strategic objectives. The following criteria may be relevant depending on the case (non-exhaustive list):
• Personal billing
• Billing the team of lawyers under their responsibility
• Personal profitability
• Profitability of the team of lawyers under their responsibility
• Commercial work (new clients and new consumption of clients already in the portfolio)
• Stability of the team under their responsibility (legal losses)
• Team building under your responsibility
• Leadership (evaluation by team members)
• Client Care (evaluation by clients)
• Commitment (seniority)
• Contribution to brand development (publications, conferences, etc.)
• Etc.
Transparency
The best way to avoid tensions between partners in relation to remuneration is to make things very clear from the beginning: criteria and weighting previously established.
The next condition is objectivity when evaluating. We recommend that a committee is responsible for this matter to avoid conflicts between two people having a predominant influence.
To develop the distribution formula, it is convenient to use the firm's strategic objectives as a reference and thus move the debate away from the dangerous terrain of defending private interests.
V. How to manage the materialization of the merger?
Making a project a reality is never an easy task. Everyone has good ideas but very few are able to bring their ideas to life by building success.
Lawyers are not exceptions to this rule. It is very difficult to integrate teams of lawyers and make the new law firm have more value than the sum of the value of each of the two law firms. Being a complex task, you cannot do without a lot of planning work and a good dose of realism. Trying to manage a merger on the go based on optimism is a mistake that is often very expensive.
Define priorities
Basically, there are three types of actions in the concretion of a merger project:
(1) Unification: it is about removing obstacles to achieve efficient cooperation between teams. In practice, actions such as the implementation of a common human resources policy, the adoption of common technological tools, etc. fall into this category.
(2) Communication: explain to all employees the reasons for the merger and to all customers its strengths. An employee is not motivated by a merger if he does not clearly see the reasons for it and the personal benefit that can be derived from it. Customers know that merger means risk of confusion, loss of uniformity in quality, etc. Consequently, all the benefits that they will obtain from the merger must be explained to all clients (greater geographical coverage, more complete advice, more modern technological tools that allow a higher quality service, etc.).
(3) Optimization: the merger serves to achieve strategic objectives. These objectives can only be achieved if the lawyers initiate the concrete actions that will allow them to be achieved (presenting clients with new areas of activity to promote cross-sales between departments, reorganizing departments to give more prominence to leaders, organizing internal trainings for specialists to share their experiences with others, etc.).
Involve everyone
All lawyers face the same problem: intensity of daily work for clients and shortage of time available for management tasks. A few cannot be asked to bear the full pressure of the work of materializing the fusion. Giving each one a very specific mission with a predetermined timeframe for execution allows progress to be made without unduly burdening the lawyers and, above all, helps everyone to feel part of the new project with the positive impact it has in terms of motivation and commitment.
Lead by example
The partners are the ones who have decided on the merger and are the ones who best understand its strategic justifications. It is logical that they are the most active in transforming the project into reality. To achieve their objectives, they need the collaboration of all the components of the firm (lawyers and support professionals). The best way to involve everyone is to set an example. The partners of the two firms participating in the merger must inspire each other by their own collaborative and pro-active behavior.
Importance of symbols
The merger is a complex and long process, it does not end when the new office has a logo and a website. However, it would be a very serious mistake to neglect the importance of symbols of renewal and union. At the beginning of the project it is difficult to assimilate the new reality because tangible elements that symbolize it are lacking. Organizing an event for the lawyers of the two law firms (better leisure than a formal talk), presenting the new corporate image, mixing the teams, creating pairs so that each lawyer has a "godfather" on the other side are examples of symbolic actions that They help create the new office.
Patience and realism
As good as the planning has been, as much as the partners have endeavored to serve as models for collaboration, and as good as the management of the symbols has been, a merger takes time to consolidate. It is not uncommon for a company to continue talking about “those of X” and “those of Y” despite the fact that the merger between companies X and Y took place 15 years ago… A law firm can take for granted its merger when a lawyer who became a fellow in the already merged office becomes a partner. This first partner without any recollection of the dispatches of origin will be the first depositary of the securities of the "new dispatch".
