Latest figures* put the number of UK law firms either merging or acquiring since 2011 at well over 160. The specific reasons are individual to each, but broadly, when law firms ‘get hitched,’ it’s due to expansion plans – global, national, or local – strategies to enter new markets, a means of capitalising on particular service specialisms, or financial pressures.
This article was first published in Solicitors Journal.
Whatever the reasons, and the financial and operational health of the firms involved, knowledge and consideration of the technology, its infrastructure perspectives and the practicalities of combining systems whether because of a merger or acquisition, are a critical element of the wider considerations as Stephen Brown discusses.
The trend of business consolidation in legal has been prevalent for a number of years. A quick trawl of the legal press reveals dozens of examples.
Amongst the higher profile mergers in recent years is the three-way merger between CMS, Olswang and Nabarro in 2016. Trading as CMS but known as CMS Cameron McKenna Nabarro Olswang LLP, at the time the merger created the sixth largest law firm in the UK and globally, and a City powerhouse driven by technology.
Another headline merger was for global law firm Womble Bond Dickinson that was created in 2017. This was in fact the final stage in a merger journey for a number of firms – Bond Pearce and Dickinson Dees merged in December 2012 when Bond Dickinson was born, and five years later, Bond Dickinson merged with US-based Womble Carlyle Sandridge & Rice and became known as Womble Bond Dickinson (International) LLP, in which Womble Bond Dickinson (UK) LLP and Womble Bond Dickinson (US) LLP, operate as separate non-profit-sharing partnerships.
At the other end of the scale are the top 100 to 200 smaller firms. Here, there has been several smaller, specialist, niche firms absorbed into their slightly larger peers. This has been largely to support these smaller firms’ individual sector teams and service specialisms, and departments’ expansion to enable capitalising on market opportunities and to gain the best legal practitioners in their field.
Of course, an acquisition is quite different to a merger, in that one firm takes control of another firm and the acquired firm assumes the same name as the firm which took control. Several acquisitions have taken place in 2019, amongst them that of of Ablett & Stebbing by Lewis Silkin in July, and Dublin-based McDowell Purcell by Fieldfisher in April 2019.
There were seven law firms that were acquired between April 2019 to July 2019, predominantly by UK-based law firms. Only two firms had their main office in London, and the remaining five firms were small international firms.
Geographical location certainly seems to be another of the main reasons why firms merge and acquire. For a London law firm to have an international presence gives kudos, gravitas and increased profile, but also perhaps the opportunity to break into a different sector, or sometimes even to support servicing an established, expanding client, or the impact of Brexit.
Aside from geographical locations, international considerations and sector specialisms, other drivers for M&As are often:
- Succession planning – for a firm’s ageing partnership looking for new partners so that they can retire. Sometimes this can be done with strategic lateral hires, but a quicker way is often to acquire a smaller firm, or to be acquired.
- Administration – when a firm is in dire straits, an acquisition by another firm is sometimes the only way to survive.
- Costs – to avoid administration but when overhead expenditure is overwhelming and looking unsustainable.
Traditionally, the level of due diligence applied specifically to IT when firms merge or acquire, is inadequate. This lack of planning often brings with it unexpected costs, commitments and low understanding of the true size of the project or timeframes involved to combine the technical infrastructure and IT systems of two (or more) firms. All too often these issues, and additional costs and work, are only discovered after the deal is struck, which can result in bad feelings at the very start of the relationship.
From our own analysis of M&A activity in the UK’s legal sector, we know that for big firms, the IT implications of a merger / acquisition are recognised as critical to the overall decision and as such are considered early in the process. This is an excellent blueprint to follow, not least as the cost of IT integration could make the difference between the viability, or not, of a deal. For smaller firms, the focus seems to be more on revenue, profit, clients and business, with the overheads and costs to integrate sometimes taking a back seat, but this can create some nasty surprises.
If a firm is strategically acquisitive and will be doing it regularly, it pays to have an acquisition and integration strategy, to create a predefined approach to absorbing businesses and integrating and implementing systems and IT infrastructure.
There are some important elements relating to infrastructure and IT that should be addressed before the contract has been signed, such as:
- Request and create an inventory of all the physical IT equipment, IT systems and software within all parties of the merger or firm/s to be acquired.
- End of life – this information must include the date of expiry for the equipment and the software.
- Analysis of each firm’s IT systems to determine whether there is an overlap in functionality. Multiple mergers and acquisitions can very quickly build complexity and duplication in systems, costs and teams, across all areas. Some of this can take time to mitigate, both contractually and technically, with much of the complexity often hidden in bespoke development and integrations.
- Discuss and analyse the merits of specific solutions if there is an overlap with similar products/solutions being used by the firms involved.
- Investigate the contracts of the individual solutions that are similar to establish:
- What are the break clauses?
- What is the financial penalty of breaking a contract?
- The cost to increase the amount of licences for an incumbent product.
- The cost of a new product that would meet the needs of the newly formed firm.
- Understand and identify the expected growth plans for the ‘new’ firm and an idea of its IT environment and architecture.
- Data liabilities are often underestimated, but compliance is especially important under GDPR, so ask about how and where data is held, the CRM system, client approvals and so on.
- When exploring the location/headquarters of the newly created firm, consider the impact on the combined IT and infrastructure, and explore the value of Cloud-based options, that could also support the workforce’s remote and flexible working options.
Creating a plan to support the integration of the firms’ IT systems and infrastructure should include:
- What do we need on Day One?
- Likely to be email, telephony integration (at least for the reception desks), branding and templates, some network connectivity (though may be tactical), access to HR tools, website updates, Intranet access, consolidation of financial ledgers for consolidated reporting, conflict checking whilst running multiple systems.
- What is required for full integration?
- Review and selection of preferred working practices, data conversions and migration of services onto the strategic PMS (noting that there is a lot of PMS work taking place at the moment so obtaining specialist resource is tough). Migration onto strategic tools to allow the duplication to be removed.
- On-boarding and training and the budget to support their delivery.
- How are IT services provided in the target business and whether you need to bring IT people / suppliers with the business.
- Technical staff changes
- Sometimes roles and responsibilities will have doubled-up or profoundly changed, so legislate for losing key staff and consider the related IP and a strategy to minimise the impact and risk.
- Evaluate the cyber-security and protection of the firms involved, and ensure any accreditations from ISO or CE+ is unaffected.
Structure IT infrastructure
It’s vital the combined firms can work on live or new matters from the off, to ensure a rapid return on investment. Researching, identifying, evaluating and planning for combining IT infrastructures ahead of the deal completing is sage and highly recommended. An oversight could be disastrous and expensive.
A formal M&A IT due diligence process that utilises IT review processes is key for any firm considering a merger or acquisition to deliver on growth, or survival, strategies. Taking a structured approach will ensure the specific needs and speed of M&A investigations are met, to deliver information, and the newly hitched firm, smoothly and efficiently.
Lights-On Consulting have experience of managing the infrastructure with regards to mergers and acquisitions. We have conducted audits and provided bespoke consultancy to support all parties to ensure the integration is as seamless as possible in times of change. If you would like more information about our IT Due Diligence in M&A services, please contact us.
*Source: Jomati Consultants publicly reported mergers involving UK-based law firms in the Lawyer 100 or which are likely to be in the Lawyer 100 as a result of their merger, starting from January 2011 www.jomati.com/uk-mergers
Note: The thoughts outlined in this article are intended to provide insights only and do not constitute advice. Always engage with a qualified expert before embarking on any IT project.