Law firm mergers; why they occur and how they affect the lawyers at the heart of them
Want to read this article later?
Just tap MyLCN+ to save it to your account
The specific reasons that firms decide to merge are as varied as the firms themselves, but there are usually some key drivers – namely, the desire to expand, geographically or in terms of expertise, or to stay afloat. For the lawyers who find that the firm they joined is no longer the firm at which they work, there are normally a raft of opportunities that await – and maybe especially so for trainees.
Mergers can be an extremely effective way to both allow firms to expand and to reduce their costs. Not surprisingly, therefore, you are never too far away from a story about a law firm merger – either contemplated, being negotiated or completed. In fact, you need look no further back than just two weeks ago, when the biggest merger of the year so far went live. The three-way combination of CMS, Nabarro and Olswang became official on 1 May 2017, following the announcement of their engagement in October last year. Now formally one single mega firm, CMS (as it is called) has become the sixth biggest by revenue in the United Kingdom and sixth biggest by headcount in the world.
And although it’s relatively rare for three firms to join as one, the CMS story is by no means unusual – there has been a substantial amount of merger activity over the past couple of years. In 2016 key deals included the tie-up between Withy King and London firm Royds; a £250 million union of Irwin Mitchell and Thomas Eggar; and Addleshaw Goddard’s entry into the United States via its merger with Hunton & Williams. To get an even better sense of the pattern of activity over the past six years, you can track things back to 2011 with the very useful, and regularly updated, Jomati merger table. Bringing together the stats of publicly reported mergers involving UK-based law firms in The Lawyer 100, the list reveals that there were 14 mergers in 2015, 19 in 2016, and eight already in 2017.
What are some of the factors that lead firms to merge?
It’s not normally the case that there is one single reason that will cause firms to merge – rather, it will be a unique set of conditions and preoccupations that coalesce to draw them together. Nebulous? Perhaps! But here are some of the most common reasons why a merger might be considered:
- 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.
Formerly graduate recruitment and trainee development manager at Nabarro, Mirrick Koh is now graduate recruitment manager at CMS. He describes some of the reasons that the game-changing CMS/Olswang/Nabarro merger came about: “We face a rapidly changing legal market. We made this bold move to build a new kind of future-facing law firm. By combining top-quality sector expertise with international scale and a strategy to become a progressive technology-driven firm, we are better equipped to deliver excellence for our clients.”
Hanh Nguyen is an insolvency partner at Charles Russell Speechlys LLP. She is a dual-qualified solicitor (Sydney, NSW and England & Wales), joining Speechlys as an associate in 2010. She found herself becoming part of a newly expanded firm when Speechlys joined with Charles Russell in 2014. As she describes, there were a number of compelling reasons behind the move: “There was a desire to create the market-leading firm providing business law and private wealth advice internationally. That combined with the fact that the firms were similar in terms of their business ideals – albeit with different key strengths – meant that the integration would see two firms merge into one stronger and more diverse law firm.”
As Hanh notes, 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 and logistics of a law firm union – including, but not limited to, office location, IT integration, salary integration, redundancies – the firms need to ensure that they are on the same page in terms of some less quantifiable elements. Those factors might include their respective 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 union is doomed. Hanh notes that over and above the “usual teething issues regarding different IT systems and office space”, the challenges of integration for Charles Russell and Speechlys were smoothed out because “the two firms had a similar work culture and ethos, which made it easier for the individuals to become part of one large team”.
Mirrick elaborates on the point about compatible cultures: “Culture was central to our firms’ decision to merge and the merger would not have happened if our cultures were not aligned. While the combined firm is larger in size and scale, we value our working relationships, and have already been collaborating and sharing successes for the last eight months. There is a real buzz of energy and excitement as we continue the momentum of change and creativity.”
What about when talks fail?
This can be publicly embarrassing for the firms involved, although most firms will be at great pains to explain it away using the best possible spin. It is the case that failure to merge can sometimes be simply the result of the pre-merger investigation and due diligence, and a realisation that the firms are not a good match – you could call it the very definition of an amicable split. Other reasons might lead to relations becoming more acrimonious, including an inability to agree on key elements of the deal. We can only imagine that there is sometimes a non-negotiable problem of senior figures vying for position or even so serious a personality clash that the deal cannot survive.
The Law Gazette noted in its feature article from May 2016 that in fact, most merger talks fail: “Recent failed talks include between the City’s Berwin Leighton Paisner and US firm Greenberg Traurig, or national practice Addleshaw Goddard and Scottish firm Maclay Murray & Spens. Viv Williams, a director at consultancy Ampersand Legal who has helped merge more than 150 firms in his career, confirms: “Every firm in the United Kingdom has talked to others about merging, but actually most merger talks break up.”
What are the specific benefits for clients?
Provided the merger has been implemented carefully, there are some clear benefits for clients – in fact, the merger will often be driven by the needs of those very same clients, who want their lawyers to be able to advise on the legal rights and obligations in other jurisdictions or cross-sector. To shore up that ability – and to hold onto their clients – firms may have identified that their best option is to combine with another firm in those areas (be they geographic or practice).
Having said that, LexisNexis published a blog in April 2016 that discusses the ways in which clients can also suffer from mergers, particularly where the combining firms don’t manage the process carefully. Some firms focus too heavily on operational issues – eg, billing and IT systems – and fail to spend enough time in advance on “client strategy (eg, account management, conflicts management, practice development and industry focus) and a firm’s culture and people (eg, agreeing common working practices, keeping and developing its joint talent)”. This can leave clients dissatisfied and prone to look elsewhere for their legal services needs to be met.
The feeling seems to be that provided the proposed changes and the new reality are communicated effectively to the client, much of the sense of upheaval and disruption can be minimised. As with so much in life, communication is key! Mirrick explains how their merger planning was designed to mitigate against the sense of disruption: “We put in place a highly effective integration programme six months prior to the merger going live that was led by an in-house management team. It was important to ensure we could hit the ground running with teams already integrated.”
What are the benefits for trainees?
There are many advantages for trainees; both those already at the merging firms and those who’ve been recruited but are yet to join. Some of those advantages include access to:
- more opportunities to travel or be seconded to new offices;
- different types of work and new clients;
- enhanced learning and development opportunities; and
- different seat options.
Mirrick outlines some of the many reasons trainees at the newly-merged CMS have to be cheerful: “If I could turn the clock back to when I started my training contract in 2007, I would have jumped at the opportunity to train at the new combined firm! There are so many more opportunities across the board, ranging from client and overseas secondments to learning structures and programmes that are geared to provide the very best in legal education. With the scale, size and ambition of the firm, it means there is a commitment to developing our trainees and equipping them with the skills to become our future partners.”
Hanh agrees, noting the following reasons that a merger can be good for trainees: “Most obviously, they will get to work with an expanded pool of clients and colleagues, including a wider range of partners with specialist areas, all of which allows for the development of knowledge and understanding in key areas. However, trainees may also find themselves with an increased number of peers – this could increase competition for places on qualification and for promotion post-qualification. Equally, it will depend on the extent to which individual practice areas merge or remain largely the same post-merger.”
One thing that might worry potential trainees is what happens if a firm announces it is to merge after you have been offered a training contract but before you start at the firm. Evidence suggests that most firms will try to honour pre-existing offers, but you may find yourself joining a firm that is different in shape and size to the one that you signed up for. Firms will be thinking about how to manage the transition in as smooth a way as possible, but there is likely to be an understandable feeling of upheaval and disjointedness. As ever though, the way you handle the unexpected is up to you – roll with the new set of circumstances and focus on the potential benefits, and you are likely to feel better about the new proposition. Resist the reality and put up obstacles, and things are likely to go less well.
For Hanh, being part of a merger as a junior lawyer brought about many professional benefits: “I had the opportunity to be promoted to the partnership in the first year following the merger and, as a result of the promotion, gained a better understanding of how the firm operates from a business perspective. I also had the opportunity to work with new colleagues in different practice areas across all the offices and the potential to add value to the firm’s existing clients.”
Mirrick reflects on the advantages that the CMS merger offers him professionally and personally: “For me, the combination has already provided a whole range of new learning experiences; merging three graduate recruitment and trainee development functions has been complex and challenging; no single issue can be dealt with in isolation, as it’s often linked to another issue which needs to be addressed, and another, and so on! Looking forward, I am excited about the capability of the combined firm; the ability to continue to make a real mark on the legal industry and the ability to provide its people with opportunities to grow and develop on a local and international level. The combination signals to me that if we are just as courageous and prepared as individuals to do things differently, then we should take every opportunity open to us.”