More than half (56 per cent) of merger discussions between law firms are ending in failure according to research from accountancy and investment management group Smith & Williamson.
In addition the research found that a third of firms spent more than three months negotiating before ending the talks while 15 per cent reported spending more than six months in merger discussions which came to nothing.
The research involved more than 100 law firms, including 14 from the UK’s top 30 [see data below].
Giles Murphy, the head of the professional practices at Smith & Williamson, said that although some high-profile mergers were announced during 2013, the high level of failure coupled with the time it is taking for firms to decide to walk away represents, “a huge waste of time, emotion and energy for management teams”.
Murphy added that the data suggested many firms see merger as a means to improving their finances, a trend that goes some way to explaining the volume of completed deals over the past year despite a general upturn in confidence across the sector.
“Too often, firms see merger as a strategy in itself,” said Murphy. “But firms need to plan properly how they’re going to develop their business. If they believe organic growth or lateral hires will be insufficient, merger may be a solution.”
Eight of the participants in Smith & Williamson’s research that are in the UK’s top 30 reported failed merger talks in recent years. Two of these said they had spent more than six months in negotiations before the deal hit the buffers.
The survey also asked about completed mergers. Four in 10 of the respondents had completed mergers in recent years and half of these spent more than six months in talks.
Merger aspirations remain high, according to the data, with almost a fifth of firms expecting to merge with another firm in the coming year an another tenth actively seeking a merger partner.
“If 30 per cent of firms do achieve a combination in the next 12 months we will see a radically different structure to the market emerge,” said Murphy.
Looking at the year ahead, do you expect to merge with another business?
14 per cent Yes
5 per cent Expect to, terms not finalised
10 per cent Seeking merger partner
21 per cent Don’t know
50 per cent No
|If you have had merger discussions in recent years (or if they are still ongoing), for approximately how long did these discussions last?|
|Discussions on-going||Completed mergers||Failed mergers|
|More than 6 months||7 per cent||19 per cent||15 per cent|
|3 – 6 months||12 per cent||16 per cent||18 per cent|
|Less than 3 months||14 per cent||5 per cent||23 per cent|
|Don’t know or N/A||67 per cent||60 per cent||44 per cent|
102 UK law firms took part in Smith & Williamson’s research into the sector. They were drawn from the UK’s top 250 and included:
- 14 firms from the Top 30
- 22 firms from the Top 50
- 46 firms from the Top 100
Breakdown by region:
- 40 – most active in London
- 16 – most active in the South West
- 13 – most active in the South East
- 33 – rest of UK