When is it too late to consider a merger?
Amanda O'Brien writing for law.com published an article recently, "Schnader Waited Too Long to Merge, While Stroock's Fate Lies in the Balance." It describes the situation of two firms — one having to close after failed merger talks, and one working hard to make itself a viable partner for a merger by getting rid of an unfunded pension plan. The article cites partner departures, an aging partner cohort, and financial complications and liabilities as signs that an attractive merger opportunity may be slipping away.
Managing partners that I speak with often say something like, "Listen, I'm always willing to discuss an opportunity, but we are coming off one of our best years, we are financially strong and stable, and we are set up well for the future. So why should we consider a merger?" I always laugh — it's an understandable question. So I try to explain the situation from my perspective. "My clients," I say, "have never asked me to go find a firm that is struggling to pay the bills to merge with."
It's a catch-22 for firms — when you are doing well, you are busy, productive, and often management has very little time to consider a merger. At the same time, when you are doing well, you are the most attractive to potential merger partners. Alternately, when your rainmakers have aged out or moved on, your best young talent is getting recruited from under your nose, and your lease starts to feel too expensive — you suddenly have time and interest in a merger, but it's too late. The firms who would have been interested in you two years ago now won't take a second look.
This can be a hard pill to swallow, but it needn't be personal. Consolidation is happening across industries, and legal is behind the curve. Because of the nature of partnerships, law-firm mergers are notoriously tricky. Law firms need business foresight 5-10 years down the road to see that while they may be doing quite well now, growing and large clients aren't likely to stick with one-office or small regional firms when national firms with similar rates and more capabilities come to town.
As Schnader and perhaps Stroock will prove, you don't want to wait too long to consider your options.
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