When two become one: why do law firms merge?
4 November 2013 | By Richard Simmons
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Why do law firms choose to combine, and what should applicants to newly-merged firms be on the lookout for? Lawyer 2B investigates…
Mergers between law firms are on the increase. In the past three years, several of London’s largest and most well-known firms have joined up with peers in the US, Australia, Canada and even China. Meanwhile, a group of previously medium-sized English regional firms have set about becoming national giants, hoovering up rivals in their quest for rapid expansion.
Lawyer 2B got together a panel of four partners from recently-merged firms to provide insight into why and how firms merge – and the potential benefits for trainees when it happens.
Why would two law firms choose to merge with one another? What are the business reasons behind it?
Ben Higson, graduate recruitment partner at Hogan Lovells: Firms will consider a merger for a variety of reasons, many of which will be unique to the firms themselves. However, common reasons include increasing one or other of the firms’ breadth and/or depth of capability – be that geographic, in terms of legal expertise or to broaden the client base (or a combination of these) – and enhancing each of the firms’ market standing and reputation.
Mergers are also often considered if the management believes there is the potential to create a stronger platform to meet the growing global needs of clients and use their enhanced capabilities to attract new clients.
Mergers can also create new cross-selling and business development opportunities for the firms.
Sarah Dyke, graduate recruitment partner at Dentons: In recent years we have seen considerable consolidation in the legal market, not only in the domestic market but globally too.
Every firm’s motivation will be different, of course, but for us the driver to combine was a direct response to our clients’ demands. Our goal was, simply put, to undertake strategic growth in order to serve our clients better.
Our combination has allowed us to move into new countries and sectors. The combination of our geographic footprint together with key sector and industry expertise enables us to anticipate and respond to the needs of clients in a way we were not able to as separate firms.
Duncan Batchelor, graduate recruitment partner at Norton Rose Fulbright: Globalisation is a key issue for clients and as a result they need their legal advisers to provide legal services at the highest level wherever they are in the world. A merger can provide law firms with the global presence and expertise their clients require while enabling them to work together to develop their own business globally. There are some types of international work that can be serviced only by truly international firms, such as the highest-level work for global companies.
Successful mergers create added value for law firms as well as for clients; they can open up new markets and contacts, as well as adding resources and know-how to a firm’s established practice.
Andrew Leaitherland, managing partner at DWF: Ultimately, the purpose of any merger is to deliver some form of strategic advantage to both firms, their staff and their clients.
Advantages include: achieving scale; delivering a stronger combined balance sheet; broadening or deepening expertise; diversifying service lines or sector focus; increasing market share; widening geographic presence; and gaining access to new markets.
Any merger will seek to put to the firms in a stronger position to compete in an increasingly challenging legal market.
We completed four mergers in 2012/13 and each one was client-led and designed with clear strategic objectives in mind – to align clients, develop our offering and further enhance client service delivery.
For example, our merger with Buller Jeffries strengthened DWF’s insurance offering and grew our presence in Birmingham while Buller Jeffries benefited from greater scale.
Similarly, our merger with Biggart Baillie enhanced DWF’s existing expertise in real estate, retail and infrastructure and extended our presence into Scotland, while Biggart Baillie benefited from access to expertise in English law.
How do firms go about merging? What’s the behind-the-scenes process before it’s announced?
Dyke: While the details behind any merger are confidential, it is no secret that finding a suitable partner is one of the more challenging parts of the process.
Finding a firm that complements and extends your current offering in terms of geography, sector and practice specialisms is only one part of this complex process.
In our experience, a merger partner with a shared vision for the future and which is a natural cultural fit is absolutely critical for success.
While the operational elements of a combination and the subsequent integration process can be complicated, the most critical issue is finding the right partner or partners at the start.
Batchelor: There is a lot of research and preparation work before a merger can even begin, let alone be finalised. First of all there has to be a good business rationale, following a defined strategy. Then it is essential to meet people and get to know the business at every level. That is part of the business due diligence, as well as being key to understanding the culture of the firm.
In the case of the US, we had established good relationships [with Fulbright & Jaworski] over many years of co-operation in the US, which made the combination and integration process much easier.
As with each of the firms we have merged with, we also have a similar culture, ethos and outlook. After partnerships vote to merge, there is then a detailed integration process which takes place before the merger goes live.
Higson: In determining whether and how a firm might achieve a merger, a significant amount of business planning and market analysis has to take place beforehand. Usually, a firm would conduct a detailed review of the current state of the global economy and legal marketplace, as well as assess likely future developments. It would also undertake a rigorous evaluation of its own current position within the marketplace.
It would then make a detailed assessment of whether its current trajectory is capable of delivering its ambitions in the timescale required and the implication of a merger for the firm’s strategy, as well as comprehensive due diligence to find a suitable merger partner (and on the partner, once identified).
Part of this due diligence includes checking to ensure that the ethos and culture of a potential merger partner is compatible with the firm as this is an important element in the success of any merger.
Once all this has been done, the detailed merger proposal would be voted on by the partners. If the merger is approved by the partnership, a programme of pre-merger preparation and post-merger integration planning is carried out, including communicating the merger and its implications to staff and clients and managing any conflicts arising from the merger.
Why are so many Western firms merging with counterparts in the Asia-Pacific region?
Batchelor: With the continued growth in the Asian ‘tiger’ economies, many analysts see the global economic centre of gravity moving further east.
Asia-Pacific has become increasingly important for our international clients and there are major axes of trade and investment that have developed between Asia-Pacific and Europe, the US, Latin America and Africa, all of which are important markets.
It is essential to be based in the region and to have the local knowledge to meet the needs of both international and local clients.
Dyke: One of the benefits of a merger is an immediate presence in a country without having to overcome some of the logistical and regulatory complexities of setting up an office.
I would look at the spate of Western firms merging with Asia Pacific-based firms in the context of the increased merger activity in the legal industry generally. Each firm will have had their own specific reasons to merge but there are some constants, in particular the belief that the merged entity will give the legacy firms a genuine competitive edge and the ability to better service their clients.
In essence, any proposed merger has to be bigger, better, more efficient, more effective and more competitive than the sum of its parts.
What are the key challenges firms have to face to make a merger successful?
Higson: There are many challenges inherent in carrying out a merger. However, paramount to making a merger a true success are: providing a consistent and top-class client service irrespective of which part of the merged firm is involved; achieving close business integration and cultural compatibility across the firm as a whole; ensuring that all staff understand and support the merger, and its implications across the globe; and partners are properly incentivised to share contacts and business opportunities.
Dyke: Assuming that the parties involved are a good fit in terms of geographies, industry and sector strengths then a successful merger all comes down to cultural alignment, a shared vision for the future, the energy and determination to make it happen, and a consistent approach to maintaining quality in every area of its activity.
We want our clients to have the same experience in every single office.
Batchelor: Cultural fit is fundamental to the success of a merger. We work in a people business and it is essential that firms and individuals have a compatible culture and outlook. That is one of the most important parameters to be sure of before any merger proceeds. It is critical that people work well together at every level across the business.
Business integration is also crucial. Norton Rose Fulbright has a strong sector focus, and we have made a conscious decision to combine with firms that share our key industry strengths.
A lot of work goes into aligning and integrating our various business groups, which means that the integration process operates at many different levels in all of the different industry-focused teams. The most successful lawyers are open, adaptable and willing to make the most of the opportunities that a merger presents.
What effect does a merger have on the firms’ trainees?
Leaitherland: A merger can present trainees with significant benefits and advantages. The merged firm may have greater resources and this can manifest in many ways: larger training budgets mean more opportunities for learning and development; more offices may mean opportunities for relocation; and a widening of service lines may provide greater scope to work in different practice areas.
The talented and ambitious trainee may well find that they are ideally suited to an acquisitive firm because of the career progression opportunities this presents.
Dyke: Joining a newly merged firm is a fantastic opportunity for any lawyer, not just trainees.
One of the reasons Dentons was created was to be able to better service our clients, particularly with regard to cross-border transactions, and to support them as they expand into new markets. Exposure to this kind of work as a trainee is invaluable and offers a breadth of experience that will stand any lawyer in good stead for the future.
Batchelor: Our global growth means we can offer trainees the chance to work with an even more diverse international client base across a large number of offices globally.
We now offer more client secondments and more overseas seats than ever before – our recently introduced seats in Australia for UK trainees, and vice versa, are proving very popular. We therefore look for flexibility and a global outlook from our trainees as well curiosity and openness to working with colleagues from offices all over the world.
What questions should applicants have in mind when interviewing at a recently-merged firm?
Dyke: Applicants should consider if the culture of the firm has changed as a result of any merger; the reasons for the merger; and if there are any plans for future mergers and what the firm might look like in the future.
Batchelor: Candidates will naturally want to know how a merger has impacted on the firms they apply to, for example how it has affected the practice areas they are interested in, the work they will be doing and the clients they will be working with. The work experience you get can be fantastically diverse. For instance, as a trainee at Norton Rose Fulbright, you could now find yourself working with US colleagues on major shale projects or with colleagues in South Africa advising on a major acquisition in the banking sector.
Higson: Bear in mind that practitioners working in a recently-merged firm are likely to regard the merger as ‘old news’ and be focused on ensuring that they leverage the merger to deliver the best possible service to their clients going forward and make the most of the opportunities that it provides.
In addition, because applicants will only be able to join the merged firm, reflections on the possible differences between the firm pre- and post-merger may not be particularly instructive.
Applicants should consider the benefits to clients and staff that a merged firm can offer, and the key features of a particular merged firm that make it stand out from the crowd, as well as the exciting challenges and opportunities that working for a merged firm might bring.
Leaitherland: I would always recommend candidates do their homework about the firm and how it operates, its values and culture, its clients and its key markets. This puts them in a strong position to have a discussion about their prospects at any recently merged firm.
Candidates might want to ask about potential areas of growth for the business – be it service lines, sectors or markets. They will also want to understand the impact of merger on career progression.
The savvy candidate may even want to ask about opportunities to be involved in any of the cross-firm initiatives which inevitably arise post-merger and which are designed to facilitate integration.
We are in a time of great change for the legal sector as a whole. We have seen multiple law firm mergers in recent years, a significant proportion of which have been driven by clients’ growing requirement for legal services in every jurisdiction in which they operate. Globalisation is a key issue – for our clients’ businesses, for the provision of legal services worldwide, for international law firms, and for those weighing up a legal career.
My time as graduate recruitment partner at Norton Rose Fulbright has coincided with our own recent and significant global growth, and I can see the wealth of opportunities that are being created for our lawyers. If you are internationally minded, it is an exciting time to be starting out on a career in law.
While greater competition for training contracts means academic ability, intellect and interpersonal skills are ever more important, flexibility and a global outlook are also becoming crucial attributes for candidates with aspirations to join an international or a global firm.
Our lawyers advise clients all over the world, often working with colleagues around the globe. The chance to work in other countries and with clients in different regions gives our people a wider exposure to global business and different cultures. Those joining our practice can expect to work with international clients and colleagues and to travel overseas – not only as a trainee but throughout their career.
As a result, candidates need to consider carefully the type of firm they wish to work for and where that firm is heading. Think beyond the two years of your training contract. Be aware of your strengths and how you want to develop those further. Have an open mind as to where a career in law can lead.
Cultural fit between the applicant and the firm is crucial, so be honest about what you are looking for when making applications and ensure you are informed about the long-term strategy of the firms you are applying to.
Business, including the business of law, is constantly changing. The best lawyers are those who are pragmatic, adaptable, and flexible enough to understand and adapt to how the world is changing. Those who are prepared to rise to the challenge, and to take unexpected opportunities, can forge an extremely successful career in a global law firm.
Duncan Batchelor, graduate recruitment partner, Norton Rose Fulbright