Little less conversation little more action needed, merger conference hears

“Lots of talking but little action” is endemic among law firms in respect of merger and consolidation but it is fear of not knowing how to merge, rather than not recognising the opportunities that merger presents, that is holding law firms back, according to speakers at the 360 Legal Group’s first Merger and Consolidation Summit which took place in London on Monday (6 February).

Around 170 delegates, ranging from sole practitioners to firms with between 2 and 100 partners, heard how resistance to change, age profile of law firms, internal politics, perceptions of values, successor practice issues and “the lack of a trusted advisor and a crystal ball” are all contributing to paralysis among law firms who are “limping along” rather than taking positive action.

Yet not taking action to deal with the changing attitudes of banks, insurers and regulators or to prepare for the effects of the Legal Services Act, the impact of the Jackson Review, hardening of the Legal Services Commission’s roles and contracts, legal aid reforms, new regulations and the unknown challenges that lie ahead when the UK climbs out of recession could see firms leaving themselves open to control on lending, SRA intervention, insolvency and failure, experts warned.

“Law firms need to ask themselves if they are merger ready and if so, concentrate on the opportunities not the threats.” Viv Williams, Chief Executive of 360 Legal Group, said.  “There is a beauty parade going on and to compete law firms need clear vision, strong leadership and good financial management.  Forward thinking firms are already considering what they want to look like in five years’ time and putting in place strategies to get bigger, get niche or get out.”

However Viv also warned against merger for merger’s sake.  “Merging two struggling firms doesn’t make for a successful practice - it simply creates a larger struggling firm.    Merger failure often comes from not having a clear strategy, not knowing all the options and not having the knowledge  and expertise needed to approach suitable candidates, negotiate the best deal and complete due diligence.   Firms also need to be aware that the real work begins post-merger.”

Christopher Lewey of Irwin Mitchell LLP advised on what a potential acquirer would look for in a law practice they might want to buy and underlined that sellers benefit from an appreciation of what buyers want before planning and preparing for acquisition or valuing their practices.

Delegates also heard the practical experiences of Bernard Seymour, Managing Partner of Linder Myers who has led the firm through ten acquisitions, five of which have taken place since 2008. 

Highlighting the need for key advisor relationships and how to appoint and use the right advisors in the right way Bernard said: “The role of an advisor is not simply to introduce you to a merger partner; it is to work with you to help you achieve your strategic objectives.

“Too many firms hungry for merger make assumptions and think they know how to take deals forward and ultimately fail because they don’t know as much as they think.  Let the advisors do their job.”

Phil Jepson of merger advisory firm 360 Jepson Holt warned that failed mergers can be expensive both in terms of cost and time.  “Having completed some 55 law firm mergers we know there are huge opportunities out there and a legal services market that will grow but become more competitive.  With more competition and less work to go round, getting together with the right merger partner can move a law firm a long way in a short time.  But firms who want to do so need to act now.  Merger is a strategic project and should not be rushed, although momentum is needed. 

“Firms who don’t assess all the options or risks and don’t prepare adequately are setting themselves up for failure which can prove costly in terms of time and money and be detrimental to the practice.  But firms shouldn’t let themselves be paralysed by fear – take the right advice and the right approach and there is no reason not to benefit from the opportunities that are out there.”

Guest speaker Antony Townsend, Chief Executive of the Solicitors Regulation Authority said that the SRA had been surprised by the number of ABS applications – 96 so far – finding the number “interesting and encouraging” and was hopeful that the first alternative business structures would be approved within weeks.

In a wide-ranging interview conducted by Martin Powell of 360 Legal Group, Mr Townsend was asked about the role of the regulator in relation to access to justice and suggested that this was unresolved.  He also expressed the view that having one regulator for the profession would be the direction he would expect the sector to move in.