6 integration areas to prioritize during a law firm merger
Further, since 2000, almost 70 percent of Am Law firms have engaged in some kind of merger according to ALM Intelligence’s 2017 report, A New Approach to Law Firm Mergers: Lessons Learned From 15 Years of Consolidation by Nicholas Bruch.
While law firm mergers have recently become more prevalent, they are not successful by default. In fact, 73 percent of merged firms “underperformed peers in revenue growth” in the five years post-merger, according to ALM Intelligence’s 2017 report.
“With a lot of mergers, when you scratch a bit below the surface, there’s not a lot of thought there,” says J. Mark Santiago, Partner, SB2 Consultants. “The acquirer and target have to have a clear idea of what their strategy is or why they’re even pursuing a merger. And a subpart of that would be what their expectations are.”
Post-merger, part of that strategy must focus on seamless integration of the two firms, including fostering the new firm’s culture, developing effective communication strategies, and meshing administrative functions. Below are six areas firms should focus on as they integrate to achieve a more successful merger.
Combining two firms with distinct cultures is a daunting task. Firms should be thoughtful and purposeful in designing strategies to foster relationships and mesh their cultures together.
Santiago advises that firms start at the top by encouraging shareholders to discuss their practices and how they interact with clients. “It’s at the partnership level that you have to get this buy-in,” he says.
Partners also must keep an eye out for potential personality clashes and areas that may ignite dissension from their premerger ranks, says Erin Meszaros, Chief Business Development and Client Service Officer at Eversheds Sutherland (US) LLP. “Upper management should identify any areas where there might be conflict immediately,” she says. “It won’t just resolve itself.”
Being proactive about potential issues and working to ease tension will aid in smoothing the cultural transition. But firms also need to provide attorneys and staff with tools and opportunities to unify.
In the merger of Eversheds and Sutherland Asbill & Brennan in 2017, Sutherland adopted the mantra of “always assume best intentions” in interacting with new colleagues from Eversheds, says Meszaros. This technique allowed attorneys and staff to view interactions positively and with an open mind as the firms melded together. Meszaros credits this technique with yielding a positive morale and easier transition toward a “one firm” mentality.
The most important strategy that firms can implement in trying to cultivate the new firm’s culture is communication, though. “I don’t think you can let either side feel they’re out of the loop,” says Meszaros. “Over-communication is the key.”
When it comes to integration, “the important thing is communicate, communicate, communicate,” says says P. Douglas Benson, Partner, SB2 Consultants. Merging firms must strive for polished, transparent internal and external communications.
Internally, firms should be candid with attorneys and staff and offer them appropriate venues to hash out concerns. Host “sufficient staff meetings for people to raise and seek help solving obstacles and wrinkles in the integration,” says Peter Zeughauser, Legal Strategist and Founder of Zeughauser Group. This kind of forum allows people not only to gain an understanding of the new firm dynamics but also to bring up any issues they are experiencing.
Transparency is also useful in retention decisions. “You want to be up front with people, and you want to give them appropriate severance packages and retention packages if they stay,” says Benson.
Regarding external communications, combining firms should create a communications plan that delineates a time line for when information should be released. The firms also must ensure that they coordinate their messaging, which may require outside assistance.
“Many firms enlist a consultant on a discrete project basis to help them develop and manage the communications strategy throughout the talks and the announcement,” says Zeughauser.
Also critical in planning an external communications strategy is planning for surprise information leaks. “There is clearly a period during merger discussion where it is likely not going to do one firm or either firm [good] if the news were to break in an unplanned way, so you want to be ready for that,” says Zeughauser.
Presenting the appearance of “one firm” is an important step toward integrating. When the merger is official, those within the firm will be eager for the website, telephones and systems to be fused and operating.
Having the systems and website running by the merger launch “is going to increase confidence of the integration of lawyers and staff,” says Zeughauser.
If firms are unable to operate without a hitch on day one, they should prepare their attorneys and staff. “Make sure everyone’s expectations are set,” says Zeughauser.
In modern practice, ensuring that a merged firm’s technology is integrated effectively is critical. “Change is burdensome in a high-stress environment in a firm,” says Zeughauser. Thus, firms must strive to make any technological transitions as seamless as possible.
Firms may consult an independent IT consultant to gauge the most useful approach. “Being able to have the credibility of an outside, independent person can help ease the way,” says Zeughauser.
Some merging firms may opt to form a team composed of partners and technology professionals to plan the optimal IT approach, says Benson. This tactic allows an integrated team from both firms to brainstorm and design a technology plan to best fit the firm’s needs.
If firms have the same technology, they may choose to move forward without large-scale changes. Such firms should be prepared for the potential for lurking issues, however.
Firms may experience a greater number of unexpected IT issues when merging because “IT people make a lot of changes to programs, many of which are not documented or partially documented so even if systems seem the same, they may not actually be the same,” says Santiago. “A lot more little things go wrong that won’t show up immediately.”
Finally, according to ALM Intelligence’s 2017 report, firms should be prepared for the increased costs of more robust technological operations for a larger combined firm.
Shareholders will want to jump right in to their matters without hindrances. Thus, firms should prioritize melding their billing practices.
“If the firms are lucky, both firms will have the same accounting system, and if you’re really, really lucky, you’ll be in the same versions, which makes combinations easy but not as easy as you think,” says Santiago. “If they’re unlucky, they’ll have different accounting systems at which point you choose which one is better.”
In deciding which system is the best, firms will likely be focused on one thing: time. “There is generally common ground in BigLaw that you want to shorten the time from time worked to cash in the door,” says Zeughauser. Thus, firms may look for the system that ensures a speedier transition.
Mergers can breed uncertainty among attorneys and staff, which makes it more important than ever to ensure that the human resources department is solidly integrated and available to respond to employee needs.
Zeughauser recommends that legacy firms come to a meeting of the minds on the expectations and parameters of the human resources department. Firms should discuss the best practices they’d like to follow and which staff and policies they need to achieve such a goal.
As law firms merge, they should prioritize the integration process to foster communication, transparency and functionality. A merger is a significant change and firms should take whatever steps they can to make it seamless and promote a “one firm” mentality.