Question:

Our firm is a two partner general practice firm in Akron, Ohio. I am 70 and my partner is 68 and contemplating retirement in the next few years. There are no other lawyers in the firm. We have two paralegals, one bookkeeper, and a receptionist. We have tried associates in the past but after we train them up they leave and go to larger firms. Our main concern is that we want a future home for our employees and our clients. We have been discussing whether a merger would be a good option for us. It seems that we either have to hook up with another firm or close our doors. Can you share any thoughts that you have?

Response: 

Merger, lateral non-equity partner, and “Of Counsel” arrangements are approaches that many firms in your situation are taking. But don’t wait too long as many candidate firms want a two or three year transition period.

It has been our experience that most of these type of arrangements have been very successful. Failures have been the result of poor cultural fit. The candidate firms – after they have moved past conflict checks and excitement about new client potential – jump immediately to an examination of practice economics and the financials. They fail to perform proper due diligence on the people. It is critical that firms insure that cultural due diligence is a key component of the merger, or other form of arrangement, assessment process. Philosophies, personalities, and life styles should be generally compatible. The parties should like each other and the deal should make sense.

The question is not the what (merge or other form of arrangement) but the who (people)

You should do all the due diligence that you can with whatever arrangement your are examining – start with the people – then move through the rest of the process.

Start by thinking about the reasons that your firm wants to join another firm and your objectives. Ask yourself the following questions?

  • Do you want to practice in a large firm? If not, what is the largest firm that you would want to practice in?
  • Is your name being part of the firm name important to you?
  • What are your expectations and objectives for a merger or other form of arrangement?
  • What are you looking from a merger or arrangement partner?
  • Make sure that you look for a complimentary fit. If you are weak in firm leadership, management and administration – look for a firm that is strong in these areas. Strong leadership, management, and administration may be hard to find in a firm fewer than twenty five attorneys.

Getting Started Preparing for a Merger or Other Arrangement

Start with determining your objectives. Why do you want to merger or join another firm? What do you hope to achieve? Is merger or other arrangement compatible with your succession exit plan? What size of firm are you considering?

Once you are sure that merger or other arrangement exploration – in general – makes sense – you should insure that your house is in order. In other words – can anything be done to enhance the value and/or marketability of your firm? For example:

  • Work on and clean up your financials. Improve the financial performance of your practice. Eliminate deadwood. Write-off uncollectable A/R and WIP.
  • Avoid entering into long term commitments that might make your firm undesirable to another firm. (new long term leases, risky client matters/cases, loans, admission of new partners, unfunded partner buyouts/retirements, etc.)
  • Enhance firm image where you can.
  • Develop a first class firm profile.

Next, develop a merger marketing plan and begin working the plan. Try to generate enough leads that you can explore merger with several firms rather than engaging in “random merger talks” which often result in isolated merger offers with you having no framework for comparison.

Use an outside consulting firm if you need help organizing, identifying candidates, and managing the process.

Once you have merger candidates identified – the real work begins. Here is a general outline of the process:

Merger Assessment (Due Diligence)

People

Philosophies, personalities, life styles, do the partners like each other, why does the deal make sense.

  • Firm Name
  • Conflicts
  • Economics
  • Compensation System Comparisons
  • Management Structure
  • Practice Compatibility
  • Practice Philosophies
  • Work Ethic
  • Firm Structure
  • Associate and Staff Support

Merger Implementation

If the two firms decide to proceed with a merger or other arrangement – then the process of implementation begins. A merger, lateral, or counsel agreement is executed, and a implementation plan is put in place. Then you begin working the plan. If the two firms are of similar size (as opposed to a large firm acquiring a smaller firm) a lot of infrastructure work will need to be done – ranging from IT systems, management structure, space, etc. to accommodate the larger entity.

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John W. Olmstead, MBA, Ph.D, CMC

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