Mergers: Finances Before Culture or Vice-Versa?

It comes as news to no one that mergers have recently been changing the legal landscape.  Tony Williams and I share the view that we are witnessing the transformation of the industry's fundamental structure, into a form that may endure for decades going forward but which will scarcely resemble what it looked like, say, 10 years ago.

So if a law firm merger is analogous to a marriage, isn't it worthwhile to make as certain as humanly possible beforehand that the union will be solid and enduring and that the whole will indeed exceed the sum of the parts?  (I don't need to tell you what the divorce statistics are like; and in corporate-land, McKinsey has published an estimate that only 23% of acquiring firms recovered their acquisition costs within 10 years.)

Today we have two perspectives on what it takes to make a go of a merger—the financial and the cultural—and if merger or mergee is in your future, I commend them to you for reading and reflection.

First is an admirably sane piece stressing the utility of analytic business intelligence tools before, during, and after the due diligence and firm-integration periods.   Despite all the many and varied considerations that go into assessing a merger's advisability (culture, partner compensation, productivity, geographic and industry overlaps, conflicts, back office issues, revenue synergies, personality concerns, likely client reactions, etc., etc.), it should all boil down to whether the combination augurs well for creating a financially stronger, more profitable firm with greater client service capabilities.

To attempt to answer this question with any non-zero degree of confidence requires rigorous analysis of the basic performance metrics for each firm:  Would the deal put key clients at risk?  Key attorneys?  Where can we enhance productivity, cut costs, or pare down unwanted debt?  Business intelligence software gives you at least a fighting chance to come up with answers to these questions that you can rely on and project from. 

Oh, and before we go any further:  You do understand the strategic imperative or benefit this deal will serve, right?   (If you find yourself or your firm suffering an identity crisis in the midst of full-scale negotiations, the only non-demented reaction is, as they say at the spa, to "push yourself away from the table.") 

Once you know why you might be merging, set up "must-have," "nice-to-have," and "dealbreaker" criteria—preferably in advance of thinking about any particular potential partner firm so you don't subconsciously put your thumb on the scales.   The other reason for setting these up in advance is that once a deal is in play, events can tend to move rapidly.  If you don't have the right questions figured out beforehand, it may be too late to regain the analytic clarity you need.

Second is our cultural perspective.   The most salient risk here is that your firm doesn't have one (a culture, that is).    Sure, every firm will tell you it has one, and having lived some of my tender years in the corridors of both the hyper-civilized, elegant and refined Breed, Abbott & Morgan, and then the high-decibel beware-of-flying-objects Shea & Gould, I'd like to believe it true of all firms as well.  The plain fact is it's not.   Here's the problem, as described by the U.S. Chief Marketing Officer of Lovells:

"law firms have been so comparatively slow to focus on brand marketing that differentiating factors between firms are relatively non-existent.   Apart from knowing partner X from law school, a client would be hard pressed to articulate differences between the service received from Firm A or Firm B. To a marketing professional, this means danger ahead."

Wherein, precisely, lies the "danger?"  If your firm lacks a culture susceptible of crisp definition or capable of articulation, then a fortiori it lacks a brand identity.

Let's unpack "brand identity" for a moment:  First of all, never confuse your brand with a mission statement (and shame on you if you've devoted more than 10 minutes to a mission statement to begin with).  Your firm's brand identity, which hopefully rises to the level of "brand equity" (yes, there is such a thing as "brand liability"), is the promise of that "certain something" that sets your firm apart.  It's the glue that makes a client of your firm feel unlike they do as clients of the other firms they use—as well as what makes it special for your partners and associates to be at your firm and not somewhere else.  

What has this to do with mergers? 

More mergers founder, or under-deliver, based on cultural misalignments than on any quantifiable disparities.   To cite a legendary example, was the Clifford-Chance/Rogers & Wells deal a problem child for years because of the quantifiable lockstep/eat-what-you-kill disparity?  No:  I would argue the numbers could have been made to work, certainly better than they did, had the clarity of a virtuous, unitary and forthright, culture been achieved earlier.  (I believe, for the record, they're at long last pulling it off.)

So once the numbers between your firm and your putative acquisition add up, you've only begun the dance.   Articulate your firm's explicit and implicit values and expectations about quality, service, and value-for-money.  Give breath to why clients see you differently (they do, don't they?).  Know what you stand for. 

Now, if you still want to merge, you have a chance.