3 Reasons why mergers fail?

Mergers can be an extremely effective way for firms to both expand and reduce their costs. Over the past few years, there were 14 mergers UK in 2015, 19 in 2016, 16 in 2017 and 3 so far in 2018, and there were many more which were not made publicly announced. Merging, for whatever reason can be very disruptive for the senior partners in the business and it can often end in tears, so why consider it at all?

What are some of the factors that lead firms to merge?

There is not usually one single reason but some of the most common reasons why a merger might be considered are:

Increased geographical reach – a firm wants to have a presence in more countries or regions, and the firm it intends to join with has offices in its desired locations.

Increased sector presence – a firm wants to diversify the practice areas it covers or the industry sectors it has expertise in.

Client-driven forces – a firm is responding to requests from its clients to provide services in locations or practice areas that it doesn’t already cover.

Financial pressures – a firm needs to join forces with another in order to mitigate against a precarious financial position.

Improved market position – a firm wants to solidify its position and it will strengthen its position by joining with another.

The most successful law firm mergers are those that combine two firms that have a shared vision and culture. So, over and above the practical details such as, office location, IT integration, salary integration, redundancies, the firms need to ensure that they are also aligned in terms of some less quantifiable elements. Those factors might include their approach to non-billable time; diversity and inclusion; pro bono work; and the importance of communication between the partnership and other staff. If the two firms take very different approaches to the above, it could be that the deal is doomed.

What about when talks fail?

This can be publicly embarrassing for the firms involved, particularly if they are a long way along the road to merging. However, failure to merge can sometimes be simply the result of the pre-merger investigation and due diligence.
Other reasons are:
Reason 1 – Realisation that the firms are not a good match, culturally. This could be a simple issue and different approaches to partner remuneration – you could call it an amicable split.

Reason 2- Inability to agree on key elements of the deal, offices, price, senior positions!

Reason 3 – People, the non-negotiable problem of senior figures vying for position or even so serious a personality clash that the deal cannot survive.

Failure to look after the clients and explain the benefits to them can lead to many clients jumping ship early in the process. Using a mediator can avoid many of these common pitfalls. The process in itself is very time consuming and costly in lost billable senior partners time and in associated professional fees, for it all than to fail at the last hurdle can be a major setback. Mediators work to ensure that the existing business doesn’t suffer whilst going through the merger process, by allowing senior partners to continue to focus on their clients and doing what they do best, generate quality legal work.

The use of mediators is also more likely to result in a successful outcome, as they take away the emotion of the deal and can give an unbiased assessment of likely cultural fit and how the final deal should be structured.
So before you waste valuable time on meetings and conference call a quick call to a company like Ortus Group maybe the best first step.