What happens when things don't work
out after a merger as well as the partners had hoped?
There are almost always some rough
spots after any merger of two businesses. However, these can be become
life-threatening for recently merged law firms, which, like most law firms,
typically have lower tolerance for unexpectedly poor financial performance.
There is an interesting piece by James Swift in the current on-line
edition of The Lawyer
about the financial ups and downs in the first year after the combination of
Denton Wilde Sapte and Sonnenschein Nath & Rosenthal into SNR Denton.
In my opinion, the combination (the
two firms joined as a Swiss Verein, rather than as a unitary entity) made
reasonably good strategic sense for these two very good firms. Base on what I
knew about the two firms, the deal also seemed to make good financial sense.
However, as frequently happens in
the early months post-merger, the financial performance of SNR Denton has not
been as good as had been hoped.
Swift's article presents an
interesting summary of the issues. It also describes what is being done
about the situation, under the new CEO of the U.K. part of the firm, Matthew
Without commenting further on the
SNR Denton situation, this has aspects of a classic case study in law firm
mergers. It reinforces three points that are often overlooked by law
firms that are considering a merger or some other business combination.
- There needs to be fully-informed business planning, before
the deal is closed, to guide the new firm through the first years
post-merger. (Our firm typically recommends two years to our merger
clients.) To wait until "the dust settles" before doing serious business
planning for the merged firm is to place the new firm's economic thinking
far behind where it should be. Law firm operations in the first two
years after a merger - and sometimes even longer - are not a normal
business situation; and ordinary approaches to business planning usually
- Post-merger business planning should also include key
performance measurements that will be monitored closely. These are usually
the most reliable early warnings that things are not going well.
- There also should be at least rudimentary contingency
plans to activate if expected levels of performance are not achieved.
Having a basic plan, that one hopes never to have to use, is far better
than improvisation in a crisis.
Even the best-considered law firm
mergers can sometimes produce disappointing results. However, the challenges
facing people in situations such as Matthew Jones and his management team at
SNR Denton can be more effectively met if pre-merger planning for post-merger
performance includes these three special elements.
on the Walker Clark Worldview Blog.
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