With the volatility of today’s economy, the legal industry is faced with unprecedented changes and challenges that require law firms to shape up to stay competitive. An acquisition allows firms to grow, diversify or increase geographic coverage and in some cases, set the foundation for a future capital event allied to an exit plan.
It goes without saying that acquisitions are not without risk of significant costs in both time and financial terms. That is why it is imperative that law firm leaders prime themselves in the best possible way before taking on such a venture.
How the present economy may affect acquisitions
In our experience, down markets create unique opportunities that would not typically be present in more stable economic times. Inevitably, some firms will struggle while others prosper. This is often as a result of attitude to risk and reward.
It is imperative for senior decision makers at law firms to be fully familiar with their risk attitudes. While some firms will ‘duck and cover’ during uncertain times, others will see an opportunity to forge their way ahead and take first mover advantages.
This dynamic can similarly be seen among different partners within any given firm. While some may feel that it is important to be prudent for the sake of stability during an unstable period, others may see it as a rare opportunity to gain more dominance in the sector.
Successful acquisitions start from within the firm looking to grow. Understanding the risk appetite between partners gives a solid gauge on the best path forward.
Regardless of motive, there are four universal factors that determine how well-primed a law firm is for growth. Senior partners should pin down these factors in order to ensure that the acquisition does not become a fraught process filled with more unexpected obstacles and challenges that could otherwise be avoided.
A buyer needs to have clarity on what they wish to achieve and how they will measure success. This can include factors such as succession, service line expansion, developing infrastructure, geographic coverage, pure turnover building for future exit plans, and more. It can include a range of successful outcomes rather than all or nothing. It doesn’t have to be daunting but nonetheless; clarity is required.
Without clear objectives and inadequate direction, it risks tens of thousands of pounds worth of chargeable time spent with no return. A vague strategy or plan that isn’t well-defined will undoubtedly take far longer to take shape if there are false starts. Hence, it is crucial to establish clear objectives from the outset to ensure a successful acquisition.
Even for a small firm, the acquisition process is a hefty one. It is integral that the experts for each part of the acquisition process have been identified and assigned for that responsibility. Having just the managing partner involved in the process can result in neglecting other firm-wide responsibilities that they are more uniquely qualified for, or oversight in areas that they are less adept in.
In such a scenario, law firms do well in the long run to consider commissioning external parties that specialise in their area of expertise. Not only is it more cost effective, it creates clarity in roles and responsibilities for each part of the acquisition process. It is also worth considering external solicitors to act on your behalf, so distance and objectivity are ensured. This helps ensure a smoother collaboration towards a favourable outcome.
Time is of the essence in any acquisition process. When establishing the timeframe, it is imperative that the key people have got the bandwidth and knowledge to pull it all together. This is where logistics comes in.
Whether it is due diligence, negotiation, integration planning, compliance, or communication; knowing what takes place when, and who to pass the baton to will determine how successful the acquisition will be.
Law firms need to evaluate their capacity and capability to handle the acquisition process from start to finish, and ensure that they have the necessary time, cash and resources allocated to do so effectively.
A post-acquisition plan is essential to ensure that the investment is successful. This plan will evolve along with the target as you get to know it better, but it needs to be considered from the outset. Failure to plan for this puts the investment at risk.
Without an effective plan, the experts you have acquired may vote with their feet as soon as they are able.
For more information, we’ve previously written a blog about the five most common merger challenges and how to navigate through them.
Getting insights on how well ready you are to buy another firm is a solid first step towards aligning your firm’s reality with your aspiration for growth.
Try our free-to-use self-assessment tool to understand if you are ready for growth through acquisition and what the next steps should look like to help steer your firm to success.
The eight question, self-assessment tool takes less than 10 minutes to complete and will provide helpful points on:
- How your firm’s operations are performing and what to do if you have gaps that need filling in.
- Where to start if you need to align reality with your aspirations.
- If necessary, how to get further guidance on what you can do to improve your situation.
Ortus Group has more than 19 years of experience in helping law firms successfully merge and acquire through deep understanding of the UK legal sector and systematic guidance.
Having advised on more than 60 successful mergers, the team is well-versed in sector analysis to identify the most appropriate targets and engage the best ones towards meeting and taking action.
For more information and how the team can help your firm grow through acquisition, contact us for a confidential, no obligation consultation.
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