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Law firms look to fend off competition with mergers

  • April 7, 2017

Given the increasingly competitive nature of the UK’s legal sector, it’s somewhat unsurprising that law firms are constantly looking for ways to gain a competitive advantage over one another and with pressure from the Big Four mounting and the number of boutique offerings growing, practices are increasingly turning to mergers and acquisitions. Just under half (43%) of law firms are looking to merge with other businesses over this year according to accountancy firm Smith & Williamson’s annual survey.

Mergers on the rise

Feedback from over 100 UK-based law firms found that 43% were looking to merge or acquire in the next 12 months, compared to only 28% last year. Given the increased pressure from new boutique practices and the ever looming threat of the Big Four Accountancy firms, it’s hardly surprising that 59% of the firms surveyed indicated that competitive pressures have increased in the last year. According to the research, firms consider a focus on specialist sectors as the greatest opportunity in the next two to three years, followed by UK expansion and lateral hires.

Giles Murphy, head of professional practices at Smith & Williamson highlighted that “Focusing on specialist sectors can help firms to strengthen their niche and so differentiate themselves. Like any brand, being able to explain and demonstrate why your service is different and superior to the competition is fundamental to taking market share.” He noted that the right acquisition combined with an effective strategy can help firms to scale-up and develop market presence in a chosen niche or region.

According to Murphy there is a growing trend of smaller acquisitions rather than mergers which can result in two companies’ taking years to reconcile roles, remuneration structures, disparate HR policies, and working culture. The latter perhaps one of the most important, as any drastic changes to working culture could result in talent moving elsewhere.

Strong leadership crucial

It’s crucial that there are strong leaders who are dedicated to managing the merging cultures, while the most dominant culture is likely to assert itself over the new combined company, its likely there might be friction at a variety of levels. Issues at partner level are likely to set the tone for the entire practice, so it’s vital that the managing partner has a clear idea of how to tackle any discrepancies in culture.

It’s also important to emphasise the firms’ new core values, and ensure that all lawyers are aware of how they add value to the practice. Consultation should play a large role in establishing these key values, if the opinions from partners on both sides are not considered it’s unlikely they’ll be adopted effectively.

Identifying the key influencers throughout the firm is also important, often these may be senior partners who are reluctant to rack up too many non-billable hours, but they will play an important role in the cohesion of the two firms. It’s crucial to educate them on the new culture as their peers will likely look to them to set the example moving forwards.

Mergers give firms the opportunity to expand their niche or to venture further afield, and ultimately improve their turnover. However without strong leadership, they can leave firms focusing inwards, rather than outwards at the new potential that mergers bring, so a strong set of core values and a plan to tackle cultural integration is vital.

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