Posted by Nigel Wallis, partner at Legal Futures Associate O’Connors LLP
Wallis: no-one really knows what a law firm is worth
“My definition of an intellectual is someone who can listen to the William Tell Overture without thinking of The Lone Ranger.” Billy Connolly
The Lone Ranger’s friend, Tonto, knew a bit about targeting:
Tonto: Nice shot.
The Lone Ranger: That was supposed to be a warning.
Tonto: In that case, not so good.
We are sometimes asked by people looking to acquire a law firm target if there is a silver bullet that will ensure a successful acquisition, given that most acquisitions fail to deliver the full benefits sought by the acquirer.
The honest answer would have to be ‘get lucky’, because there is undoubtedly an element of fortune involved in identifying the right target, negotiating the right deal, paying the right price and delivering the right performance.
Having said that, if you are planning a law firm acquisition, here are a few things we think you could do to improve your luck:
Have a clear reason to buy
In my last article, I outlined seven reasons why successful acquirers buy businesses. In brief, these were: benefiting from a target’s improved productivity, taking out a competitor, achieving rapid diversification, boosting market share, leap-frogging R&D, capturing early stage innovations, and bagging a bargain. If the reason for your proposed acquisition is one of these, you already have a better-than-average prospect of success.
Plan and keep planning
It is, of course, possible to over-plan. I know this having once spent a fortnight on safari trying to get a perfectly focused wild animal photo and ending up with 200 shots of vegetation. Proper planning and financial forecasting will, however, enable you to anticipate issues and decide, in advance, how you will tackle them. It’s a form of before-the-event insurance.
Don’t be a lone ranger
Acquisitions are hugely time-consuming and energy sapping, so it’s advisable to create a small internal team to manage the project. This team will need some input from finance, HR, IT and marketing personnel but in a way that does not distract them from their normal day-to-day responsibilities.
The internal team should engage specialist lawyers, accountants and insurance brokers with experience of handling law firm transactions. The right external advisory team will help you get the deal structure right, guide you through every step of the process and avoid you wasting time and money.
Buy yourself thinking time
The rapidly changing legal sector is not a place for slow-coaches but we are aware of quite a number of recent law firm deals that were done in haste and where the acquirer is now repenting at leisure. A good team of advisers will help buy you valuable time to think clearly and make the right judgment calls.
This sounds easy, but no-one really knows what a law firm is worth. Valuation, however scientifically carried out, remains a bit of an art. The use of a specialist work-in-progress valuer and an M&A accountant can give you and your funders a high level of confidence that you are in the right ball-park but prepare yourself for a bit of horse trading.
Retain the operating instructions
Some acquirers put huge effort into the acquisition itself but underestimate how much time and effort it takes to properly integrate a target post-acquisition. Sellers can sometimes be a little less charming once they have banked the cheque, so it’s vital to allocate plenty of energy and resource to operational integration once the ink has dried on the sale and purchase agreement.
Culture beats a vulture
It is not really possible to asset-strip a law firm as value evaporates if the loyalty of its staff and clients is lost. Acquisitions work best when there is a mutually beneficial cultural fit and this remains the number one criteria for a successful law firm investment.
Win-win or no deal
Every deal has its own momentum and it’s very easy to get swept up in the paper-chase and feel there is no going back. Every successful deal provides some element of win for both parties. If it looks like this cannot be achieved for you, be ready and able to walk away, however late in the day it may be. As a good friend of mine once said, better an empty house than a bad tenant.
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