How to Make a Law Firm Merger Work: The Business Case

Editor’s Note: The author of this post is a partner with the law firm Blank Rome and previously headed its business department and served as finance partner. This is the third article of a series he is publishing on Big Law Business about how to successfully execute a law firm merger. You can read the prior articles here and here .

By Barry H. Genkin, Partner, Blank Rome

In the past few weeks I’ve written here about two crucial early steps in the law firm merger process. For these deals to be successful, it’s critical to establish a cultural fit and to align the firms’ financial interests. But as important as these steps might be, law firm mergers are most often conceived for business reasons. While it may seem obvious, it’s imperative to develop a compelling business case — it defines the long-term shape of the combined firm, and articulates the plan to enhance performance.

A strong business case for a merger should address three major components: combining complementary areas of expertise and enhancing depth, both within professional disciplines and geographies; cross-selling new services to each firm’s clients; and filling in practice area gaps. Firm leaders must build a comprehensive business case that encapsulates the merger’s benefits and synergies. This should be presented to each firm’s leadership and important stakeholders to build consensus and a unified vision of the combined firms’ evolution. The business case should be balanced, which means addressing downside risks as well. Being candid with all partners and stakeholders on every aspect of the deal will help build goodwill — an invaluable commodity whether or not the merger is consummated.

Consider an independent consultant

Assuming both sides perceive the business union to be compelling, having an independent industry expert validate the business case could be valuable. Getting a third party’s perspective can help neutralize emotional or personal biases and create enthusiasm for the deal. This process must be closely managed to achieve all expected goals. A “go/no-go” decision will be much easier to make once this step is completed.

Hire outside counsel

Mergers tend to be transformative for all parties. For partners, they’re life changing events. With so much at stake, it’s advisable, especially for the acquired firm, to seek outside legal counsel. While it might seem redundant to hire yet another set of lawyers when combining two teams of attorneys, it’s well worth considering, especially for firms with limited law firm mergers-and-acquisitions experience. Keep in mind Abraham Lincoln’s famous remark: “He who represents himself has a fool for a client.”

Check for conflicts

Any due diligence analysis must start with both firms’ top clients. These should account for between 50 to 75 percent of each firm’s revenue. Conflicts or redundancies amongst these keystone accounts must be identified early on, as one major roadblock can subvert even the best-looking deal. Just as with any business combination in any field, the search for conflicts should be exhaustive. After the biggest clients have been examined, the process should move on to second-tier clients, some of whom may be growing quickly and represent major growth engines for the firms. This process should continue through closing, as each firm adds new clients to its roster. Lastly, focus on business conflicts as well, such as one firm representing generic pharma, and the other representing brand pharma.

Confidentiality: Take nothing for granted

Any merger exercise must include an undertaking of confidentiality on both sides. Premature disclosure can jeopardize the deal, tip off competitors and make clients anxious before the firms can talk with them and present the merger with proper context. Don’t take anything for granted. I recommend using browser-based, non-company email accounts to handle merger communications, including due diligence, as well as using code names throughout all communications. In the case of a pre-mature leak, there should be an agreed upon plan in place early on, with a response agreed to by both firms. Acting quickly will ensure that the firms, not competitors or internet gossips, control the merger narrative.

Be transparent

During due diligence, which should be conducted by each firm, leaders should maintain an open dialogue and share historical and new information as it becomes available. Operating with as much transparency as possible will result in better decision-making and a better merger, if it is to happen, and it will also justify the considerable time and effort spent in due diligence, a detail that should not be overlooked. A comprehensive due diligence will also help validate the business case and facilitate integration, the subject which I will discuss in the next and final installment.