All systems go when firms merge?
28 June 1999
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Preparing for merger can be one huge headache. Pay structures, partnership deeds and client lists are all areas that have to be addressed if firms are to be compatible and the marriage is to work. But one of the biggest headaches of all is how to merge the IT capacity of two or more firms.
Law firms are relying more and more on bespoke legal practice management systems and, as such, achieving compatibility is something firms cannot afford to put off as they prepare to get into bed together.
Clifford Chance is currently on the hunt for a new practice management system. Senior development manager Chris Hoad says the firm's proposed merger with Rogers & Wells is a key consideration.
He told The Lawyer (21 June): "Should the merger go ahead, then [Clifford Chance and Rogers & Wells] will be working together very closely to ensure compatibility."
The question is, can each firm co-exist and maintain efficiency without co-ordinating their systems? Can two systems exist side by side or do the firms have to have identical IT systems, either for day-to-day administration or for document and practice management?
The answer is that firms have little choice but to ensure that their systems are compatible and will definitely work together.
Terry Lawley, business development director at Capsoft, a manufacturer and distributor of HotDocs document management software, claims that too few firms pay enough attention to IT compatibility when negotiating merger deals. "One of the biggest problems is that when a merger is taking place, law firms do not take enough due diligence on their IT systems. They are more concerned with their client lists and these kind of issues.
"It is always the last thing to be taken into consideration and generally after the merger has gone through," he says.
Colin Stringer, business development director for mergers and acquisitions at IT consultancy Cap Gemini, agrees that people are failing to deal with technology during merger talks.
He says: "In our experience, the whole rationale behind the merger is the theory of streamlining. Often they have very few people in the firm who know about the merger [because] it is kept under wraps. While there may be a partner who is responsible for the technology involved, the overall head of IT will not be. They will then be thrown the baton and told to get on with it."
Lawley adds that law firms in particular suffer from this problem because of the way they are structured: "The IT director will not be so prominent and will not be sitting on the partnership board."
Looking at IT early on can have benefits for firms considering merger, argues Ian Wimbush, managing director of Peapod Solutions, which provides products and services for the legal profession.
He thinks it is unfortunate people do not investigate the technology earlier on because it can say a lot about a company, its priorities and strategies. "If you have one firm that is using an old Unix system and DOS word processing, and another that is using Microsoft [software] and so on, then it is obvious that one practice has decided to invest in IT and is forward looking," he claims.
Eversheds merged with Frere Cholmeley Bischoff last year. Michael Hervey-Murray, director of IT at Eversheds' London office, explains how both firms had to start looking at technological compatibility as soon as possible.
He says: "We had to assess [and] understand the problems we were going to face in the compatibility of systems. It is a significant thing and it should not be dismissed lightly. The relevant IT people were brought in pretty soon after the deal went through. It was something that needed planning and thinking through."
Hervey-Murray also comments that a lot of the IT systems were merged by "taking the best of both", although Frere Cholmeley's practice management system Norwel was scrapped and replaced by Eversheds' Elite system.
He admits that the whole process took longer than expected, and outside help, from both Norwel and Elite, was needed.
Such integration takes time, effort and resources. Hervey-Murray says: "Integrated systems have been introduced over time. We had been training [staff] for six months so they were able to come in [after the merger] and use e-mail and so on. All the IT systems [were] fully merged within six months. I would have said two to three months but there are invariably delays. We also got outside help on converting [the practice management system]."
The cost of either adapting existing systems or scrapping both and replacing them with a new one can be astronomical. Lawley estimates that a medium-sized firm investing in a new system can expect costs upwards of £500,000.
While Hervey-Murray will not divulge the cost involved in making the two firms' systems work together, he does say that IT restructuring costs were taken into account as soon as the merger talks started: "It was something that was budgeted in at the beginning of the whole thing."
Stringer warns that if firms do not do this, they could face losing out on the benefits accrued through merging.
"In many cases the streamlining is not achieved, because throwing together two different systems erodes the increased profitability they are trying to achieve," he says. "They do not realise how dependent on IT they are."
Stringer tells of the time when he was advising on a merger. One company had a system that was 20 years' old, the other had one that was 18. The newly-formed company decided against buying a new system and automatically went for the "newer" system, despite it being so old.
Stringer thinks a new way of thinking is needed. Firms have various options when looking at how best to turn the IT used by two companies into a system used by one, he argues, but adds that often the best solution is to install a completely new system.
"[People should say] 'let's look at a new system. It is going to cost us a fair old amount to merge so why not go the whole hog and get a new one?' There is no one solution, but firms should look and see what is out there on the market and see what is most appropriate. [They] should look very, very hard at not keeping the old systems," says Stringer.
He adds that by doing this, firms can also avoid "a turf war" between the different IT departments. Anne Mansfield, a director at AIM, which provides project management services for the legal profession, agrees personnel can be a major problem if not handled correctly.
"The biggest minefield is the politics, because one firm is always the stronger of the two and winning over the subordinate firm, we find, is always the hardest task," she says. "It needs to be very carefully managed, both from a logistical and personnel point of view."
Firms can no longer afford to treat technology as an also-ran. The cost of doing so may not simply be an e-mail system that fails to work but instability in the entire practice management structures of the merged firms at precisely the moment when the practice's infrastructure needs to be at its most effective.
Stringer is cautiously optimistic about the future, though. He says: "I would like to think that firms are mature enough to realise just how much they rely on information technology. IT is no longer a tool that supports the business; it is part of it."
Wansbroughs Willey Hargrave merged with Beachcroft Stanleys in December 1998. The deal was completed at the beginning of May this year and has created a 122-partner national firm.
Chris Charles, finance director at Beachcroft Wansbroughs, says IT was a high priority during the merger talks. Both firms had the same practice management systems, but there was still "an enormous amount of IT issues".
He says: "IT can be a real problem so it was right up on the top of our agenda. We also had two really good IT people who the partners listened to pre-merger. Even though we had a very similar approach, there are still an enormous amount of IT issues. There are choices about the ways you do things but we had pre-merger meetings."
Charles adds: "Both Beachcroft Stanleys and Wansbroughs Willey Hargrave were on the Elite system. But all these things take time to put together. We have had a wide area network (WAN) since 1991 in Wansbroughs Willey Hargrave. It certainly helps that we ran a multi-site organisation for some time and so we were acutely aware of IT issues.
"The merged firm is quite a different animal to the pre-merger companies. Putting together the two WANs is actually happening [this] week. We would expect that early in 2000 we will all be looking at one system."