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Law firms: over half of merger discussions end in failure according to new research

More than half (56%) of merger discussions between law firms are ending in failure with a third of firms spending in excess of three months in negotiations before the decision to halt talks is reached.  15% of firms taking part in this research report spending more than six months in merger discussions which came to nothing.

The research, carried out by Smith & Williamson, the accountancy and investment management group, involved more than 100 law firms which included almost half of the UK’s top 30 firms. [See further details below].

“Although some very high profile mergers were announced during 2013, the high level of failure and the time it takes firms to reach that conclusion, represents a huge waste of time, emotion and energy for management teams,” said Giles Murphy, head of professional practices at Smith & Williamson.

A third of participating firms see merger as a means to improve finances, which suggests that economic need is a key factor in driving merger plans and goes some way to explaining the volume of completed deals between law firms over the last year, despite a general upturn in confidence across the sector.

“Too often, firms see merger as a strategy in itself. But firms need to plan properly how they are going to develop their business and if they believe organic growth or lateral hires will be insufficient, merger may be a solution,” added Murphy.

Participants included 14 law firms from the UK’s top 30. Eight of these firms report failed mergers in recent years, with two of these practices spending more than six months in negotiation despite the deal hitting the buffers.

The survey also asked about completed mergers. Four in ten of the respondent firms had completed mergers in recent years and half of these spent more than six months in talks.

Merger aspirations remain high with almost 2 in 10 firms expecting to merge with another firm in the coming year while a further 1 in 10 are seeking a merger partner.

“If 30% of firms do achieve a combination in the next 12 months we will see a radically different structure to the market emerge,” said Murphy.

Plan for success

He explains: “Merger should be seen as a possible way of executing the firm’s strategy, not as an end in itself.  The objectives need to be clearly articulated and appropriate targets identified.  Too often, merger discussions are described, perhaps politely, as ‘opportunistic’, essentially meaning a chance meeting between two firms who only, fortuitously, would be a good fit. 

“Unsurprisingly most of these discussions fail, but our research suggests that finding this out takes an unnecessarily long time.  Whether initial discussions are opportunistic or clearly targeted, firms need to identify early in the process the key issues that must be resolved.  Rather than let these drift, they need to be addressed by both parties and if a resolution cannot be found, talks should end promptly avoiding an unnecessary waste of effort.”

For further information: Giles Murphy, head of the professional practices group at Smith & Williamson, the accountancy and investment management group

 

Detailed figures on the research

Looking at the year ahead, do you expect to merge with another business?

14%     Yes

5%       Expect to, terms not finalised

10%     Seeking merger partner

21%     Don’t know

50%     No

 

If you have had merger discussions in recent years (or if they are still ongoing), for approximately how long did these discussions last?

 Discussions on-goingCompleted mergersFailed mergers
More than 6 months7%19%15%
3 – 6 month12%16%18%
Less than 3 months14%5%23%
Don’t know or N/A67%60%44%

102 UK law firms took part in Smith & Williamson’s research into the sector. They were drawn from the UK’s top 250 and included:

  • 14 firms from the Top Thirty
  • 22 firms from the Top Fifty
  • 46 firms from the Top 100

Breakdown by region:

  • 40 - most active in London
  • 16 - most active in the South West
  • 13 - most active in the South East
  • 33 - rest of UK

 

If you would like to receive a copy of the report, please email us.

 

Disclaimer

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.19%

Smith & Williamson is the official sponsor for the National Business Awards’ search for the Entrepreneur of the Year in both 2013 and 2014.

Smith & Williamson LLP
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International

Nexia Smith & Williamson Audit Limited
Registered to carry on audit work and regulated by the Institute of Chartered Accountants in England and Wales for a range of Investment business activities. A member of Nexia International

Disclaimer

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Smith & Williamson is the official sponsor for the National Business Awards’ search for the Entrepreneur of the Year in both 2013 and 2014.

Smith & Williamson LLP
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.

A member of Nexia International The word ‘partner’ is used to refer to a member of Smith & Williamson LLP.

Nexia Smith & Williamson Audit Limited
Registered to carry on audit work and regulated by the Institute of Chartered Accountants in England and Wales for a range of Investment business activities. A member of Nexia International.