Small and mid-sized law firms are receiving lots of proposals for affiliations that are less than a traditional law firm merger. They frequently ask us, "How should we evaluate these opportunities?" We advise our clients to approach them in the same way that they would to consider a full merger.
Small and mid-size law firms are learning that a formal merger is not the only answer to their strategic challenges. There are many affiliations and "quasi-merger" forms available to law firms that want to extend their geographic presence or service capabilities without going into a full merger, for example:
- law firm networks
- multisciplinary networks
- specialized practice networks
- highly-integrated regional groups of law firms
- bilateral strategic alliances and joint ventures
- combinations with other financially autonomous law firms practicing under a common brand
Although the opportunities and risks presented by these forms can be significantly different, we recommend that our clients use substantially the same methodology that they would use for a full traditional merger. The direction and extent of the investigation and analysis will vary according to the nature of the proposed affiliation and the strategic position and priorities of the firm. Nonetheless, law firms should invest the time and resources necessary to ensure that they make well-informed, intelligent decisions. Taking short cuts only increases the probability of disappointing results or, worse yet, actual harm to the firm's business performance and strategic position.
strategic business case
As with a formal merger, the first question to be considered is "Why should we do this?" Although the specific factors of a Walker Clark Strategic Business Case vary significantly with the nature of the proposed affiliation, the inquiry has the same three basic goals: (1) identify and quantify the synergies; (2) identify and define the risks; and (3) estimate the probable return on investment.
The specific questions might be different from those that we would consider in developing the case for a formal merger. For example, when helping one of our clients to decide whether they should join a network, we usually focus on three network-specific issues:
- What external value will the network deliver to the firm?
- What internal value will the network deliver?
- Will the network support your firm's strategic objectives and interests?
cultural due diligence
Walker Clark's Cultural Due Diligence analysis is more than just whether the lawyers in two law firms will like each other.
Instead it examines a range of issues with respect to decision making, planning, practice management, and group performance to identify potential incompatibilities that could prevent the combination, affiliation, or merger from achieving its full potential. It is probably the most important risk management tool in any combination of two or more firms.
Some law firms mistakenly assume that Cultural Due Diligence is not required when joining a network or group of other law firms. As a partner in one of these firms recently commented, "We don't need to do this, because we are joining a group of several law firms, each with its own culture. Culture will not be as important as if we were merging with only one firm."
When considering an affiliation with a group of law firms, the basic questions and concerns are the same as those in Cultural Due Diligence in a traditional law firm merger. The focal points, however, are somewhat different. How will your law firm fit into the governance, planning, decision-making, and practice management policies and procedures of the organization (as distinguished from each of the other firms in the group)?
These issues sometimes can be more complex than those involved in a merger with a single firm. Failing to recognize them, understand them, and address them before the deal is closed is one of the most important reasons why so many law firms are disappointed in the results.
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Norman Clark
