The legal press is once again full of merger rumours, speculation and announcements. While the recession induced hiatus stemmed the unprecedented growth experienced by firms in the mid-1980s, a number of firms are once again blazing the merger trail while yet more firms have restored consideration of this topic to their partnership meeting agendas.
An interesting question amid this increasing level of merger activity is whether this time around firms will apply the lessons that should have been learned as a result of the mistakes made in the 1980s?
That is, paying insufficient attention to considering the business rationale for the merger in detail and tackling issues of potential difficulty or sensitivity at the outset.
The failure to address and develop agreed policies on the myriad of issues during the merger negotiations and prior to the merger taking effect;
The lack of appreciation that a merger creates a very different firm which requires an altogether new approach to its management and development;
The failure to achieve a full integration of partners and staff, thereby perpetuating the old two firm mentality;
Underestimating the significance of issues such as the firms' respective cultures, styles and therefore potential compatibility;
An unwillingness or inability on the part of some partners (and others) to adapt to the
requirements and demands of the new environment;
Short-termism, namely, unrealistic expectations in terms of the financial impact of the merger upon the performance of the new firm.
A merger that takes into account and thoroughly addresses each of these issues before it becomes effective is one which is less likely to give rise to problems and an unattractive situation some 18 months later.
The starting point for every firm, especially if a merger is being contemplated, is to have a strategy embodying clearly articulated goals and objectives in response to the question: What sort of firm do you want to be over the next five years?
The objectives must be realistic and based on widespread discussion at partnership level, supported by the input of staff and, equally importantly, clients. The importance of the strategy is not only to give the firm a clear sense of purpose and direction, but also to gain partner commitment to the resultant objectives.
The strategy formulation may raise objectives that might cause a firm, for perfectly valid reasons, to contemplate a merger – to fill people gaps; to fill speciality gaps; to broaden the client base and to extend the market geographically.
Equally, beware of the questionable or invalid reasons for a merger – in order to get bigger; to acquire an individual; to improve profitability; to solve management problems; to dilute difficult partners or because everyone else is doing it.
On the question of size, it is unlikely that anyone would dispute the fact that size for its own sake has little attraction.
In fact, in considering a strategy for growth, it should be borne in mind that a larger firm will always be more expensive to run and the economies of scale Holy Grail may be a myth; management and communication difficulties will increase; consistent quality standards may be more difficult to achieve and increased size does not necessarily mean increased substance, nor does it necessarily attract more or better quality work.
In the event that a firm seriously wishes to pursue a merger, a two-stage approach should be taken. The first stage culminates in a written 'agreement to merge in principle' having successfully addressed various key and secondary issues and following satisfactory pre-merger inquiries. The next stage is the careful and detailed planning of the operation of the new firm before it formally comes into being.
The ultimate success of any merger will largely be determined by the initial preparation undertaken by each of the firms and the care with which the merger process is planned, negotiated and executed.
Stephen Macliver is co-founder of specialist legal consultancy the David Andrews Partnership.