During turbulent times it is natural for law firms to withdraw and ride out the storm, and that is an understandable approach. Fortune, however, often favors the bold. For firms able and willing to act, turbulent conditions create real opportunities to increase revenue and profit.
A merger is one of the strongest ways to capitalize on uncertain market conditions. What are the advantages? There are ten worth setting out: five for the acquired firm and five for the acquiring firm.
Advantages for the Acquired Firm
1. Expanded Client Base
The first benefit to the acquired firm is immediate access to a far larger client base. Clients previously out of reach, whether because of geography, minimum firm size requirements, or a lack of expertise in certain practice areas, become accessible. This is often the primary reason a firm pursues a merger.
2. Expanded Practice Offerings
The acquired firm also gains practice expertise it did not have. If it had no commercial real estate lawyers and the acquiring firm has a deep real estate practice, its existing clients suddenly have access to that bench. Those cross-selling opportunities strengthen existing relationships and increase revenue from established clients.
3. Greater Resources
Larger firms typically bring greater resources: marketing expertise, business development professionals, better technology, and a larger pool of associates and service attorneys to do the work. Each of them can improve revenue and profit.
4. Greater Management Skill
One of the most common challenges in a small firm is management. Excellent lawyers are not automatically excellent managers, because the skill sets differ. Larger firms have usually worked out which of their lawyers can manage, and many also employ business professionals to run the firm as the business it is. Effective leadership shows up in both profit and culture.
5. Improved Performance
Closely related to the fourth, a merger usually improves performance across the acquired firm. In smaller firms the partners often have close personal as well as professional relationships. That has obvious benefits, and it also makes necessary conversations hard to have. When a partner’s performance falls short, and there are no extenuating circumstances, leadership has to be able to address it candidly. In smaller firms those conversations frequently do not happen, and the firm’s performance suffers for it. A merger into a firm with stronger management usually mitigates the problem.
Group hires and combinations, from either side of the table
In the next article, we will look at five advantages of a law firm merger for the acquiring firm.