Get your firm merger ready

As a managing partner, you never know when that merger approach might come through which is right for your firm. At least half of the firms we work with did not actively plan to merge, but each approach offers different opportunities and sometimes these can be compelling enough to change the strategy. Only the most blinkered firm would turn down such an opportunity, so why not get ready in any case? By running this process you will look at your firm through an outsider’s eyes, which is good practice and often leads to improvements in any case.

So, at your next partner’s conference why not consider the following:

• Commitment: If your partners want to merge or are at least open to the idea, check that they are committed. Often the group seems committed but there is a saboteur in there who will derail any eventual deal, so find out early who they are and what objections they have, and overcome these.

• Outcome: Agree what would be a successful outcome. As managing partner you need your brief so you can deliver on it, or else you will waste time and will never get agreement.

• Prey or predator?: Naturally most firms want to be the predator – it is more comfortable and allows you to largely impose your culture on the merged firm – but this depends on the size of your firm and what you are looking to achieve. If you run a £300,000 turnover firm and your aim is to access larger clients or a wider geography, this will only be achieved by your firm being the prey.

• A tight team: Having too many voices involved looks disorganised and confused to the other side. So, ideally you should agree a small negotiating team, consisting of the managing partner, the financial director and one of the younger partners. This might seem strange but the younger partner has a longer future in the firm than you do and their voice should be heard. Then agree how you are going to report back to the partner group and stick to this. If you give regular and detailed feedback you maintain their buy-in and prevent them all popping in to see how things are going.

• Confidentiality: You must keep any discussions as confidential as possible. Always refer to the deal by a project name and ideally use external email accounts such as Gmail to deal with the project correspondence. This is not to say staff will be indiscreet, but again this is an interesting process and if the staff are aware of it, it will be discussed and news will soon spread outside of the firm.

So, once you have your merger plan, or have agreed parameters to assess whether a merger approach would be interesting, what information will you need to collate to be ready?

Nowadays, with insurance risk and run-off determining many mergers, the first thing should be the past three years’ PII applications and your cover details, plus details of any claims. You will also need the last three years’ accounts to show how the firm is running as a business.

The third element is details of any leases. In our experience, firms do not like taking leases from current partners, especially where one side does not own the office and the other does. To avoid problems, consideration of break clauses or even selling the property or taking it into a SIPP can help.

Staff are a key asset and so you will need all staff contacts, but more important to the health of the firm are details of significant leavers or joiners. Partner demographics are also important, ideally showing a nice spread of equity partners in their thirties through to their sixties, rather than a host of sixty-somethings with no succession plan. If there are any future stars in the firm who are not yet partners, have their CVs to hand as well.

The other key asset is the clients, and a simple anonymous analysis showing the top ten clients in each department over three years and how much they contribute to overall turnover is very useful.

This is quite a weight of information but it can be summarised in a two-to-three-page memorandum which can easily be swapped with the other side during the first stages.

Finally, we would always recommend using a non-disclosure agreement, which should include non-poaching clauses for both staff and clients. Whether these are fully enforceable is open to discussion, but they do serve to put the discussions on a professional basis, and in our experience most firms play fair and respect the confidences that inevitably are disclosed.

Andrew Roberts is the managing director of Symphony Legal and an experienced merger broker

@symphony_legal www.symphonylegal.com