Thursday, October 6, 2011

Is There A Law Firm Merger in Your Future? The Odds Are Increasing....Are You Ready?

According to an Altman and Weil survey released this week, Law Firm  Mergers Surge in 2011, law firm  mergers for the first 9 months of 2011 exceeded the number of mergers for the same period in 2010 by 78%.
There is no shortage of additional sources to support this trend. Keynote Speakers at the two recent PLL Summits in 2010 and 2011, Jim Jones of  Hildebrandt Institute and Peter Zeughauser of Zeughauser Group, outlined the key economic and strategic forces which will continue to drive law firm mergers. Several year's ago an executive from American Lawyer Media told me that they planned to expand ALM coverage of mid-sized law firm financials in order to help law firms identify candidate firms for merger or acquisition. A recent American Lawyer story, Empire Builders quoted a senior partner from Allen & Overy as stating that "There is a very distinct correlation between multi-jurisdictional work and profitability." While this statement was made in the global context, there are parallel multi-jurisdictional and economic issues driving clients to firms with a multi-jurisdictional footprint within the US as well as abroad. Perhaps more ominously the article suggests that firms who have been safely ensconced in the financial centers of New York and London will face serious challenges if  according to the Chief Executive Ted Burke of Freshfields,"this turned out to be the Chinese century or the BRIC century."

It could happen to you. Are you Ready?
During the first months following the merger, firm management will be focused on integrating accounting and IT systems.  Other departments including the library and research services are generally not fast-tracked for integration. However, delaying the selection of a departmental leader and strategy for integrating library resources and services overlooks substantial cost and risks to the firm.

A Note about Co-Leadership
It is not uncommon for firm leadership to defer departmental leadership decisions and to simply make all departmental leaders "Co-Director's" for an indefinite period. This is generally a lose-lose proposition because effectively, no one is in charge, the staff is confused, important decisions are subject to endless debate, critical time is lost making progress on issues critical to lawyer support, cost control and risk management. In the worst of all possible outcomes, co-leaders are "rewarded" for their endurance by being demoted and replaced with an outsider who is given the full authority for decision making that was not given to the legacy leaders.

Have the Courage to Re Apply For Your Job
Frankly the department and the firm would be better off allowing leaders to compete for the leadership positions by having each legacy Director submit a strategic plan for the department and let the best strategy win.

Key Areas of Cost and Risk
  • Online Research Contracts  Contracts with vendors such as Lexis and Westlaw may contain escalation clauses which could substantially increase firm costs. Do not allow the vendor to simply combine the cost of the two contracts and send you a  consolidated bill. Renegotiate the contact and seek to leverage economies of scale.  You should be able to get a better deal post merger if you conduct and effective analysis of historic usage in both firms. 
  • Software Applications Identify administrative software applications such as Integrated Library Systems, Client validation software and web monitoring software. Determine if products are fully deployed and if these products and licenses are scalable to fit the needs of the combined organization.
  • Cost Recovery Each firm may have a different approach to cost recovery and a single approach needs to be adopted and rates recalibrated to account for the additional costs or discounts reflected in a post merger contract. 
  • Electronic Resources and Licenses Inventory and compare all electronic licenses. This exercise can be a real "eye opener" which illustrates how effective or ineffective your negotiation skills are.  Creating a combined inventory listing the cost and the scope ( firm wide or limited access) could illustrate vastly different terms for a single product. Since some vendors restrict sharing of content outside of a licensed office, you need to move quickly to renegotiate licenses which cover post merger workflow needs. See previous post Centralized Licensing as a Risk Management Strategy
  • Research and Cross Training Law firm mergers are often driven by a desire to broaden the range of practice areas offered by the firm. Inventory the skill sets and expertise of research staff and provide opportunities for them to cross train their new colleagues in specialized resources and research techniques.
  • Centralization of Research and Administrative Services One of the most significant ways to demonstrate strategic leadership is to reduce redundant workflow by centralizing work in a single location.  See  previous post: Centralization as a Value Strategy
  • One City - Multiple Offices It is not uncommon for merger's to result multiple offices in one city that will need to be integrated and consolidated.The cost of print collections may  be reduced when offices are combined. If both firms have a fixed fee:Library Maintenance Agreement - the benefits of weeding may be delayed until the contacts end or are renegotiated.
Stay Focused on the Highest and Best Outcome
Recognize that "post merger" you have a new employer and a chance to start again. The success of the merger and firm should be your primary focus.  Maintaining a positive attitude toward the merger and demonstrating collegial respect for your new colleagues is critical to maintaining the morale of your department and bolstering your profile as a true leader in the new firm.

No comments:

Post a Comment