Considering acquiring another law firm? Here’s what you need to consider

A merger in the legal sector typically involves a combining of services with mutually beneficial and recognised advantages in terms of increasing clientele, efficiencies, and capabilities.

Acquisition, as the name implies, refers to a firm purchased by another and can be friendly or hostile.

Companies acquire or merge for various reasons. They may seek cost-cutting measures, an avenue into diversification, or looking for a greater market share.

Other reasons for acquisitions include:

  • Opening a gateway to a foreign market
  • Taking advantage of a firm’s technology
  • Taking advantage of workforce skillsets
  • Enhanced capacity – this can lead to the avoidance of capital expenditure
  • Healthy finances – a potential acquisition will have well-organised financial statements, which allows for smooth due diligence

What should my practice consider when merging with another law firm?

  • The new firm’s finances

If you are looking to merge with another law firm, it is vital to investigate their finances and plans. Do they have a strategic plan for the next five years that aligns with yours?

  • The new firm’s practice areas

Think about what your current firm can translate over to a new practice and vice versa. It would be ideal to merge with a firm that enables new opportunities for you.

  • Equity vs non-equity

An equity offering usually includes the new partner receiving a loan to cover their equity buy-in or subtracted from your pay. Whatever way, you need to understand how it affects your compensation.

Due diligence: the key to an acquisition

Due diligence is important in establishing whether the target company is in sound financial health. If not, can the acquiring or merging firm deal with the debt and turn it around?

Things to consider and pitfalls that can occur when making a business acquisition or merger:

  • If the asking price is wrong, many acquisitions or mergers fail, so ensure the price is right.
  • Beware of any debt load – a target company with an unusually high level of debt should be treated with caution.
  • Should that not be an obstacle, hiring a top-level chief executive will set it on the road to success again, and by stabilising the firm, ensure there is little or no financial drain.

Make sure you obtain proof that the target business owns key assets, such as property, equipment, and intellectual property, such as copyright and patents.

It is important to make you have details of any past, current, or pending cases, also look closely at the impact of a change in the business’ ownership on existing contracts.

For further information and advice on mergers and acquisitions, please get in touch with our expert team.