If it seems like each new day brings a new law firm merger, you’re not wrong. After ten years of low but steady M&A activity, the number of firm combinations globally as reported by Altman Weil MergerLine™ topped 100 in 2017, 2018, and 2019, with 2019 being a record-breaking year with 115 law firm combinations announced.
The COVID-19 pandemic has impacted firm M&A activity in 2020, with 37% less deals reported in the first quarter of the year. Although activity has slowed, law firm leaders are closely watching the market and the most resilient and entrepreneurial firms will be searching for strategic acquisition targets that will round out and build on their existing platforms.
For some insight into this growing M&A trend, Nate Bogdanovich, PS Companies’ Executive Vice President and Partner, shares his experience in facilitating firm combinations. PS Companies is a market leader in law firm mergers, and has successfully completed five since 2016.
Q: Why are mergers such a strong trend now?
Nate: The legal market hasn’t experienced rapid growth in a while – it’s been relatively flat. Law firm leaders are asking themselves, How are we going to grow? Where are we growing? How are we protecting our current business? Firms are looking to enter new geographies, too. Mergers present an opportunity to address many of these concerns. In our experience, you should always be open to listening. You never know when the right opportunity could present itself.
Q: What’s the common tipping point as firms move from thinking about a merger to serious exploration?
Nate: Does this make our respective firms better? That question must be answered, and can be answered in several different ways:
- Our clients are going to have better service.
- Our practice area strengths complement one another.
- We service different geographies and can expand our footprint.
- Our bench of talent has deepened, better preparing us for succession planning.
Q: What does a good merger candidate look like?
Nate: In our experience there isn’t a one-size-fits-all approach. We’ve been involved in many deals where a prospective firm doesn’t fit with most of the market, and then suddenly there’s that one firm that fits just right.
I believe every firm can be a merger candidate. That said, there are best practices that can help you run your business better every day while at the same time positioning you for a potential merger: Have a clean balance sheet, constantly be on the lookout for talent, address succession, invest in practice areas that are a weakness, and improve lateral partner recruiting.
Q: What slows the merger process down, and what can firms do to prevent delays?
Nate: Many things can influence this process, so focus on controlling what you can:
- Ego. Every firm has one. Too often firm ego gets in the way of getting a deal done. Have a mindset that we are better together and that’s why we are in this conversation.
- Time. Time is a deal killer. Law firms counsel their clients this way, and a potential combination isn’t any different. Make sure you carve out necessary time to keep a deal moving forward. I’ve seen good opportunities fall apart simply because the amount of time that lapsed between conversations was too long. Don’t let time ruin a good opportunity.
Q: What is the recruiter’s role in this arena and the value-add?
Nate: We hire lawyers to represent us for our disputes, to purchase buildings or sell our businesses. In the same way, we should have a good resource to help in merger discussions. A good resource is going to have a deeper market understanding, provide confidentiality, and be a tour guide in driving the process. We’ve been involved in opportunities where neither side would have connected without our introduction. We can also keep the conversation moving forward between two parties, so ego and time don’t kill a deal.
The Merger Experience
Nearly three years ago, PS Companies helped attorney John Yentz merge his firm The Schroeder Group with DeWitt LLP. Now a partner with DeWitt, John relates the story like this:
“The Schroeder Group was looking for a strategic transaction with another firm whose attorneys had similar values, and PS Companies suggested DeWitt LLP as a good fit. PS Companies initiated the combination discussions, and worked with leadership in both firms to facilitate. As meetings progressed, we concluded that the combination was a good fit both in terms of values and practice styles, and also in expanding the breadth of our practice areas. PS Companies led the charge in facilitating the successful combination, and continues to regularly communicate with the attorneys involved.”
If you’re interested in getting a feel for the market or having a confidential conversation, please contact us at (414)276-6689 in Wisconsin, (763)270-5963 in Minnesota, or reach out to Nate directly at [email protected].