Square Mile

WILL 1999 be the year of City law firm mergers? I think not. To begin with, lawyers hate change. Some of the recent rejected merger attempts demonstrate the point. While merger was strongly backed by "management", the partners just would not vote for change. This was not based on strategy, it was simply a "no" vote for change.

The better question is the strategic one. Not will, but should 1999 be the year of City law firm mergers? Again, I say no. Surprising, perhaps, given the plight of many middle tier firms. They are caught in an ugly sandwich – squeezed in and under attack from all sides, meanwhile they haemorrhage their best people to top tier firms.

Facing this kind of pressure, merger may seem like a good idea. No. The starting point for any merger discussion must be an agreement on market focus, the new firm's success depends upon its ability to be clear on market position and to communicate that positioning with clarity to its clients.

Clear market focus, combined with the ability to communicate that focus, is the hallmark of the five magic circle firms. Two top twenty listed companies undertaking an international merger are almost certain to choose one of those five – a choice which illustrates two points. First the success of the magic circle firms in differentiating themselves from the pack. And secondly, that it is nonsensical for two middle tier firms competing in middle tier markets to imagine that by merger they will perform alchemy. It will not work. They will not dramatically rematerialise in a new market. They will simply create a big and cumbersome middle tier firm, but now without the agility to service the requirements of a middle tier client.

Magic circle members have no fears. Neither do the niche players who demonstrate clear market focus. Coping with these problems is the domain of the middle tier generalist City firms. They lack market focus and offer little to make them distinctive. Meanwhile they continue to face attack from all sides. The solution for them is to concentrate on market focus and junk some of their practice areas.

As with most aspects of law firm management, the strategy is easy – it's the implementation which is difficult. Perhaps some of the proposed merger partners whose talks have failed should talk again. But rather than talking about merging, firms could discuss what to do with less profitable departments, while concentrating on their individual strengths. This way, each firm may emerge with strength in depth and clear market focus.

But will that happen in 1999? I doubt it. Partnerships are not that brave and partners hate change. More likely is an acceleration of the partner moves characteristic of recent years. As the better firms sharpen their strategic focus, their appetites will increase: we can expect to see whole teams being detached.