Looking beyond the statistics – mid-market mergers

5 Feb 2013

Findings from a recent survey indicate that merger activity remains strong amongst 10+ partner law firms, with 54% considering that there was a good or almost definite chance of a merger compared to just 17% of those with under 10 partners.

The survey undertaken by the Law Consultancy Network comes hot on the heels of an article we wrote in December entitled ‘mid-market merger madness’, highlighting how some mid-market firms could be merging into trouble not merging out of trouble.

With law firms feeling increasingly threatened by differing aspects of market deregulation, selling a business can sometimes seem an easier option than solving the strategic challenge. As Andrew Otterburn of the Law Consultancy Network highlighted: “Although there is still a lot of interest in the possibility of a merger or amalgamation of some sort, the actual numbers coming to fruition is still low.”

The survey findings revealed that just 20% of firms with 10 or more partners/members had actually completed a merger in the last year. These figures reinforce our view that very few firms have the skills and resources to evaluate and process a successful merger, without using external advisers. Many find themselves falling at the first, second or even third hurdle.

On face value, the level of consolidation activity (of some degree) within the mid-tier at present is unprecedented with the survey revealing that 54% of those firms with more than 10 partners believe that there was a good or almost definite chance of a merger. Combining these statistics with the tough economic climate it may cause some perfectly good law firms to panic and surrender their existence to predators.

Take a moment to look beyond these findings and you will see a different picture begin to emerge. Although there is a marked increase in merger activity, there is still a huge gap which exists currently between the number of conversations taking place about the potential to merge and the number of deals being done. Firms have a long way to go in learning how to identify the right merger partner and then learning how to go through a process to deliver the deal.

Only a select few managing partners have had the courage, determination and vision to lead their firms into the future using an expansion strategy, which involves a merger as the way of delivering the growth. Many mergers often leave one party feeling like the poor cousin, initially introduced as part of the family only to become, at best, disillusioned with the resulting outcome.

Whilst we agree that merger activity should be happening, we also recognise that this shouldn’t be to the detriment of the sector. It’s important to remember that some firms would be better not to grow through merger or acquisition. Firm’s having a strong practice area expertise with matching reputation, may be better advised to consider becoming or remaining a boutique firm. Our advice – if unsure look outside, talk to a business that understands and can get you what you need to develop the skills and experience to move you onto the next level.