Brand blend: Speaking a different language in mergers

Consolidation in the legal market is likely to be a continuing trend. A recent survey from firm Fox Williams found that 95 per cent of managing partners at the UK’s top 200 law firms predict ‘massive consolidation’ of the legal market over the next two years.

Mergers have become increasingly popular as firms look to grow in tough markets. They offer firms the chance to compete in new areas, often with the aim of becoming global. This means that firms which might currently dominate local markets may lose ground as clients look for firms with global top spots (as can be seen, for example, in the big four accounting firms).

The introduction of alternative business structures (ABS) also means that, more than
ever before, ‘traditional’ firms are competing with innovative firms headed up by business people who do not necessarily have a legal background. Just one look at the Quality Solicitors (QS) website shows that their brand is worlds apart from some other legal firms. And while QS operates in a relatively low-value area of the market, which is not a target for some firms, their branding and overall business model successfully mirror consumer brands in ways which will appeal to clients.

The problem firms face is that many are selling the same services and the differentiating factors
are few and far between. Shouting to be heard above the market din requires a great brand which is not only recognisable but instantly conjures up an image of the firm’s niche, specialisms, and history. However, many firms can struggle to cultivate a brand which really communicates their values. Merging two firms to create one brand ‘voice’ that coherently conveys both sets of values can be tricky, to say the least.

Firms do recognise the value of branding. However, compared with consumer and other professional services brands, this industry still has
a way to go to create globally recognisable and powerful brands.

Long-name game

An ongoing issue for firms is how best to brand a newly merged firm. Typically, merging firms will amalgamate names, resulting in a lengthy list of surnames which rarely roll off the tongue. One famous example of the long-name game is the US firm Ziffren, Brittenham, Branca, Fischer, Gilbert-Lurie, Stiffelman, Cook, Johnson, Lande & Wolf –although a search reveals this entertainment-focused LA firm now operates under the catchier and more memorable moniker of Ziffren Brittenham.

Looking at the UK’s legal mergers in the past year, for example, we saw these classic name mergers take place: Squire Sanders became Squire Patton Boggs after merging with the Washington-based firm, and Morgan Cole and Blake Lapthorn merged to become Blake Morgan. This year the world’s largest law firm will be created, as China-based Dacheng has announced it plans to merge with global firm Dentons (due to Chinese regulations it is more of a combination of the firms than a merger).

The Dentons merger sets the tone for the consolidation we are likely to see this year: more
and more UK firms want a tie-up with an Asian firm to capitalise on the growth opportunities available in that part of the world. SJ Berwin merged with Chinese behemoths King & Wood Mallesons last year and now many other firms are turning to the East for tie-up opportunities.

This sort of bilingual tie-up can cause branding difficulties. It has been reported that the merged Dentons firm will be known as Dentons globally, but retain the Dacheng name in China. The new logo will represent both firm names as ‘?? Dentons’. While this is a fair and by-the-book new firm name, the Chinese characters could present difficulties – least of all for UK-based buyers of legal services, who may not have heard about the merger and query the Chinese characters. It may be a slight leap (although not unfounded) to think that someone looking at the logo for the first time may think the firm only works in China, or has a China specialism which isn’t relevant for their UK-based requirements.

It is already obvious that ?? Dentons is doing a lot of work – both in the press and in its own literature – to explain the new merger, ensure the brand remains strong, and avoid any confusion.
However, this merger is an excellent example
of the potentially difficult choices a firm faces
when looking to take part in a merger overseas.

Matching up cultures and other values, which can differ the further you look abroad for a tie-up is also an important factor for firms to consider. Successfully communicating one set of values through a brand can be tricky – merging two (especially if they are very different at their core) could prove almost impossible.

Quantifying brand value

In light of its significance, considering how much
a firm’s brand is worth before entering into a merger is a given. While quantifying brand value from a financial perspective is now well known, it is still not well understood. Valuing a brand is a complex process which will usually utilise a combination of methods to ensure its overall position is well-rounded, considered, and informed.

The three principle methods of valuation to consider, and use together, are:

• The income approach: This method produces a discounted, present-day value of future cash flows attributed to the brand. This involves a well-informed understanding of how brands drive cash flows and the associated opportunities and risks;
• The market approach: This looks at comparable market transactions to estimate a brand’s value; and
• The cost approach: This considers the costs incurred in creating or recreating the brand.

Appreciating metrics as lead indicators of future market outlook and financial performance is a good place to start. It is advisable that this work is done with a specialist in brand valuation in order to gain a robust framework and cross comparisons based on other experience. This will be facilitated by detailed understanding of the brand’s performance in the market and its potential for future growth.

Even if a firm is not considering a merger at the moment, it is worthwhile to keep a close eye on their brand’s value. Identifying what drives this value enables management to increase a brand’s performance, resulting in increased revenue, larger market share, and higher profits. Brand valuation helps to inform this.

Traditionally, law firm brand value, or goodwill, has often been ignored in changes
of the ownership, in particular an admission
or retirement of an equity partner. However,
the market has now changed.

Preserving heritage

So, what can firms do to ensure their brand’s reputation and heritage is preserved in a merger,
and that the new brand successfully connects both
firms’ values in a new entity which doesn’t lose any recognition from the end user? This is the million-pound question, but there are some steps firms can take to ensure that a merger, be it cross-border or not, goes smoothly:

• Understand the perception of the firm’s brand in the marketplace: Take heed of the information discovered when the brand is valued and realistically place the firm’s brand in the market compared to its peers;
• Try and leave internal politics at the door: In all likelihood, the partners at Ziffren, Brittenham, Branca, Fischer, Gilbert-Lurie, Stiffelman, Cook, Johnson, Lande & Wolf appreciated that their full name was a little impractical. Many firms have rich heritages and tend to simply stick names together when creating a new firm. However, it’s probable a lengthy name will be shortened anyway – internally, solicitors and support staff will refer to the firm by an abbreviated name, or an acronym, which will undermine the brand. Similarly, this is likely to be done by the media when writing about the firm. Committing a lot of time to pushing an unrealistically lengthy or complicated name on clients and other stakeholders is not likely to preserve either brand’s reputation;
• Communicate your new brand: Have a clear strategy around how to communicate the new brand. This should include a comprehensive, but not too extensive, list of values and specialisms the firm wants clients and others in the legal marketplace to recognise the brand for; and
• Leverage the brand internally to maximise the benefits of merger: If a combination of cultures is needed, the new brand can be used to encourage working together.

Consolidation in the legal market is a trend which does not look like it is going to go away. This
means merged brands, and ensuring that a
newly merged firm’s brand is properly thought
out, maintained and communicated will help
to ensure merger success. SJ

Thayne Forbes is joint managing director at Intangible Business

@IntangibleBiz