Merger repercussions

Law firm mergers have been taking up a lot of column inches recently. Some may be strategic but the ones that attract the most attention are those that are forced by necessity.

In the words of one senior accountant: “This is when two plus two adds up to three-and-three-quarters instead of the desired five.”

Alistair Rose of Coopers and Lybrand explains why some law firms may be being forced together. “There are a lot of pressures for legal mergers, especially for mid-sized firms which have yet to find a niche. Those firms which are not investing in their future are ripe for merger or even acquisition.

“I know of several firms which are adopting stricter financial controls now with a view to future mergers. Financial position obviously affects the terms of entry to a merger, so they do not want to have someone bail them out in the future.”

Whatever the factors surrounding a merger may be, there are obviously implications for whoever audits the firms that come into being.

Chris Hinze, head of marketing at Nabarro Nathanson, says of the 1995 merger with Turner Kenneth Brown. “TKB used to use Chantrey Vellacott to audit its accounts, but we use Deloitte & Touche. The fact that it is one of the Big Six firms is not a consideration in this case because we used to use Spicer & Pegler. It is more to do with the consolidation of the accountancy business.

“We are now with Deloittes because it has in-depth industry knowledge, but it also knows our business because of our long association. And of course value for money is always a consideration.”

Brian Hopkinson, managing partner of Pinsent Curtis says: “We have used KPMG Birmingham for as long as living memory at Pinsent & Co.

“Simpson Curtis always used KPMG Leeds, so we have not had to change auditors. In fact, this speeded up the merger negotiations because, even though they were at arm's length, relationships existed between the two [regional] KPMG offices.”

Another reason he gives for sticking with KPMG is the fact that it has not moved into the legal market in the same way as other accountancy firms.

“This is very important,” he says. “There are several areas, including auditing, where we won't deal with our direct competitors. If accountants move into the the legal market they will lose work in other areas. It's a choice they have to make.”

One merger where a Big Six firm has lost out is that of Nicholson Graham & Jones and Brecher & Co. The merged firm uses Elliotts, but Brecher & Co was with Deloitte & Touche.