After the honeymoon

After the honeymoon

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 Jones.

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.

  1. 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 are inadequate.
  2. 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.
  3. 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.

Read more on the Walker Clark Worldview Blog.

 

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