There are 2 major motivations for firms considering merger for growth. Consolidating their current location, or merging into a new profit centre.
There is a lot to be said for consolidating, but property is always the key driver here. One or both firms will need to be able to exit their leases within the next 12-18 months or else you just get 2 silos with twice the headaches and none of the benefits. However, if one or both can move then it is a great opportunity to bring everyone under one roof, save costs and have the ability to cross-sell to a larger client base. Ideally your neighbour will have complementary business areas – private client to add to your commercial for instance which will allow the combined firm to maximise both.
But maybe your firm is already dominant in your location, or when you look around you feel that any merger with a neighbour would damage your brand, so how do you grow then?
Put simply, you need to merge into another location and replicate what you do well there. Of course you could set up a new office wherever you want, but the local firms will try to snuff your new office out and there is a long lead time to profitability so a merger, if you can find the right partner, is a far better option. So what are the practicalities?
Firstly your new office needs to make sense geographically and be close enough for the main firm to be mutually supportive. A few years ago we worked for Withy King who were in Bath, Swindon and Marlborough with a small office in London so the obvious place to go was Oxford. Bath and Oxford have similar client characteristics, and the new office was not too far away to manage and integrate properly. The merger has been a great success with over 40 lawyers now the WK Oxford office.
Secondly, once you have decided on location what about the target’s owners? Consider their equity partner demographics and the ages of the junior partners. If these are looking good for the future, then the deal is a merger. If the partners are all older with no succession, then it is an acquisition which is probably better but you will need to put your own leaders in there.
Thirdly, practice areas. Do you want to add more of the same, or add business lines that you do not currently have. Mogers are another Bath firm who have a range of skills and are particularly known for their Private client business, but they are not too well known outside the town. Dyne Drewett were based south of Bath in a very wealthy agricultural area and were known for this type of work but were perhaps struggling to develop more work from their clients. A merger allowed both firms and their client bases access to new skills and work sources and their merger has been a total success.
Fourthly, recruitment. This might seem like an unusual benefit, but in the above example, candidates find Bath a more attractive location to live and work in perhaps than Sherborne or Wells which are both fantastic places but are often not on candidate’s radars. Again, the merger allowed the new firm to attract high level talent to work in Bath but then service the client base stretching down into the Mendip agricultural belt.
Merging into new profit centres can work very well, and often the target firm is more open to the idea than a local merger because they are able to maintain some element of independence and they will feel their service offering is enhanced rather than diluted as it might be by taking on a neighbour.
The author of this article is Andrew Roberts of Ampersand Legal. Andrew can be contacted at andrew@ampersandlegal.co.uk or 07956 961404. Other members of ALFMA can be contacted here.