Mergers Offer Path to Alternative Succession Planning

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As the pandemic emerges, many High Street firms appear to be at risk and I believe there will be more law firm consolidation in the SME space in the coming period.

Estate planning remains an issue, but we are also seeing changes in the professional compensation market impacting smaller law firms. Bonuses have recently seen a sharp increase for law firms (especially those where more than 20% of their fees are linked to the transfer of ownership). Some of the promising young lawyers no longer aspire to be partners, so this type of natural succession plan no longer exists in some firms. It also leads to more consolidation.

Many smaller law firms don’t realize that a merger could help them with their exit strategy and avoid having to wind up insurance coverage by becoming a successor firm with the acquirer. The Law Gazette recently released data which shows 154 law firms closed around PII renewals between September and October of last year, up from just 76 in months on either side. In the year from June 2020 to May 2021, 103 firms merged, accounting for 18% of the total closures reported during that period according to figures from the SRA.

At the start of the process, many objections and issues arise that have the potential to prevent a deal before it can really get started. For example, you could consider mergers between companies of different cultures; or the decision to incorporate or lose the name of a merged company; and finally whether a merger will be financially beneficial for both parties.

In such cases, it helps to have an experienced head to help overcome them before they become problems. The key is to maintain an open line of communication with both parties at all times to ensure that information is exchanged when promised and in the correct format, etc. where they can find a deal.

The key is to maintain an open line of communication with both parties at all times to ensure that information is exchanged when promised and in the correct format, etc. where they can find a deal.

A key factor in law firm mergers, in the UK in particular, is succession. This will either be an ambition to develop the firm enough to make it more attractive for junior lawyers to buy and facilitate the retirement of senior partners, or more often with smaller firms (those with fee income below £ 5million per year) the junior ranks are unwilling to take on the historic responsibilities and the only option current owners have (due to insurance) is to find a partner fusion. This, combined with access to private equity and the possibility of a possible listing, has led to a new generation of consolidating law firms.

As a first step, a business must decide whether it is the predator in the process or the prey and act accordingly. Once this key decision is made, the time spent putting together a detailed briefing is time well spent. When the business is ready to act, it needs to make sure it finds and talks to the right targets rather than just the one company on the road and once these conversations start, leaders need to focus on the process and not focus on the process. not be distracted by the day. the job or momentum can very easily be lost and the good deal could easily fall. This is probably the biggest deal in company history and investing in the right professional help can make all the difference.

Philip Lewis spent 10 years managing law firms with Barclays Bank before moving into legal recruitment and professional liability insurance consulting.


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