Ninety-five per cent of managing partners at the UK’s leading law firms forecast major consolidation at the top end of the sector over the next two years, a ground-breaking survey released today of 102 of the UK’s top 200 law firms shows. The research was jointly conducted by Byfield Consultancy, legal communications specialists, and leading partnership law advisers, Fox Williams LLP.
The aim of the research was to gain an in-depth understanding of the motives for law firm mergers: the level of research and external advice that law firms seek in the merger process; how merging firms go about communicating their plans; and many of the pitfalls encountered along the way.
The research shows that increased competition, client expectations, the requirement for growth and enhancement of reputation are the forces increasingly driving top UK law firms into the arms of merger partners – but are they taking sufficiently well-informed decisions before getting hitched?
With 45% of firms that had not yet married saying they would consider merging in the next two years, clearly these considerations should be front of mind for the leaders of an industry that is worth £20bn to the UK economy.
The key findings of the survey show that:
The drivers for law firm mergers
- 43% of merged firm respondents said the majority of mergers in the last five years had been a success. Whilst nearly half – 49% – of non-merged firms maintained the opposite, taking the view that the majority of law firm mergers in the last five years were not successful.
Choosing a partner
- Some 61% of merged firms and 66% of non-merged firms previously held merger discussions with one or more firms that ultimately did not result in merger.
- Growth is the key driver for merger over financial stability for both merged and non-merged firm respondents (with 81% and 73% respectively citing that reason for linking).
- Just 16% of merged firm respondents confirmed they engaged a third-party broker to approach to a prospective merger partner with 61% saying they had not done so.
- 42% of non-merged firms would consider engaging a third-party consultant to make an initial approach to another firm.
The dating game
- Only 6% of merged firms confirmed they had instructed external lawyers for merger advice.
- 30% of non-merged respondents would consider instructing external lawyers to advise on merger negotiations.
- The most common reasons to do so are for assistance with due diligence (75%) and documenting terms (63%)
- With hindsight, the process that merged law firms would said they would most like to have improved was internal communications, with 32% of respondents citing that function.
- Half of merged firm respondents said they gauged the reputation of a potential partner through the mainstream and specialist press.
- The same percentage relied on ‘word of mouth’ while 43% assessed client feedback.
- The findings for non-merged firms were very similar: 64% would rely on client feedback; 54% on word of mouth; and 52% on press coverage.
- Almost a third of merged firms relied on additional specialist communications support during the merger process by appointing an external PR consultant or agency.
- Some 43% of non-merged firms would consider appointing an external PR consultant to advise on communications during the process.
Tina Williams, Chair and Head of Professional Practices at Fox Williams LLP, says:
“It is clear that successful mergers require a clear strategy, efficient implementation and huge efforts in integration.
“This report is a timely reminder that the sophistication and professionalism that firms display when executing mergers for their clients is not always reflected when dealing with their own businesses. It has revealed that many firms adopt an approach to finding merger partners that is surprisingly lacking in rigour and that there is a reluctance to use the skills of third party specialists to get deals done. The latter is remarkable, given that most firms’ business models involve selling the benefits to clients of taking independent expert advice.”
Gus Sellitto, Managing Director of Byfield Consultancy, says:
“A fascinating finding is that over 50% of both merged and non-merged firms relied on the media profile and word-of-mouth assessments to gauge the reputation of a potential suitor. This highlights the importance for law firms of having a strong profile if they want to attract the right partner.
“Encouragingly, both merged and non-merged firms recognise the importance of well-planned and executed communications strategies during deal negotiations and execution. However, the research also highlights the point that a communications strategy should start squarely at the beginning of talks. Law firms must make sure their communications strategies, both internal and external, are thorough and consistent if they want to remain an attractive prospect.”
Notes on the research
- The report draws on two multiple choice questionnaires sent to the managing partners and communications teams of the UK top 200 law firms.
- One survey was designed for those firms that had merged in the last five years, ‘merged firms’, while the other was designed for firms that had not merged during that period, ‘non-merged firms’.
- 102 firms out of the UK top 200 took part in the initial research, which was carried out between October and December 2014.
- A number of respondents were subsequently interviewed in-depth about the themes that emerged from the analysis.