The latest statistics, released by accountants HW Fisher, suggest that merger mania in the legal professions is continuing unabated.

Motivation to merge

Many small firms have felt the effects of the stormy economic conditions far more than their larger counterparts. For some small firms there has been a 'perfect storm' combining recessionary pressures on fees, increased regulatory burden, market changes resulting from the Jackson reforms, increases in claims, and the resultant increases in PII premium from a shrinking pool of insurers willing to cover smaller firms undertaking higher risk work.

There is a certain critical mass where investment in systems and processes, training and compliance enables firms to operate efficiently while fulfilling their administrative and compliance requirements.

For many smaller firms, mergers also provide access to additional work-streams, allowing for a more diverse spread of work across the business - perhaps reducing reliance on residential conveyancing or personal injury claims work.

The advent of ABS's and the incentive of patnering services, or external investment, may also prove attractive for some.

Until death do us part?

The last spate of mergers some years ago was followed by a significant spate of divorces. The question on many people's lips is whether the current merger mania is going to have a similar fall out. Whether you are a firm looking to expand by acquiring struggling practices, or are doing the law firm equivalent of placing a lonely hearts ad, looking for another firm to snap you up - the same rules of dating still apply:

  • Don't act hastily out of desperation. Look what happened to a number of financial institutions who bought up distressed competitors in haste.
  • Look behind the advertising fluff. Is your chosen partner what they seem? Do your due diligence:  look at your potential partners claims and complaints, audit some files, vet their finances.  Are you as confident as you can be about what you will be getting?
  • How compatible are you, really? Do your skill-sets and strengths complement each other? Will cultural differences create problems over time?
  • Will it be a distance relationship? Will that be a strength or a source of problems?
  • Have you met the whole family? Are there any problem children you might want to leave behind?  Or perhaps rather than marry into the whole family, you might decide you'd rather adopt - by taking on a particular team instead of merging with the whole firm.

Insurance Implications

While insurance should not be the tail wagging the dog, it is a very relevant consideration, that needs to be factored in early, if you decide that you really have met the right match.   Contact your broker at the initial planning stages - who should advise you on issues such as whether you are best taking on the liabilities of the other firm, or for it to go into run-off.

Your broker should also be able to provide you with some indications of the impact on your premium, and your market attractiveness in insurance terms, should the merger go ahead.

There is also the question of timing?  Do you want/need to merge imminently, or would it be better to set a date  - perhaps your next PII renewal date - to allow time to effect the merger in as risk-free a manner as possible.

To read the HW Fisher report, click here.

Lockton has produced an advice note for any firms considering merging.  Clients can access it in the Guidance section of the logged-in site.  Alternatively, contact your Lockton Account Manager for more information.