If you read the recent legal press the in-vogue trend at present appears to be the merger. Whether it be the international agreement between Hogan & Hartson and Lovells or the now defunct Simmons & Simmons/Mayer Brown discussions right down to the more modest Needham & James/Shakespeare Putsman merger, there is no doubt that firms are looking at pooling resources to battle on a bigger stage to that which they presently enjoy.
According to the Law Gazette (Dec 2009) more than 75% of the Top 100 firms have been approached about a merger, and around 20% of firms have unsuccessfully tried to complete a merger in the previous 12 months according to Smith & Williamson research. The number of large firms expecting more mergers to take place has also increased year on year since 2007.
However it is not just large firms which are looking at mergers or acquisitions in the present climate. In a period of economic instability, whether it be recession or the fragile post-recession recovery, it’s natural for businesses in any field to look at costs and expenditure, identifying areas where savings can be made.
There comes a point however where it becomes necessary to look at a completely different approach. Due to a huge hike in the price of indemnity insurance the sole practitioner and/or small partnership is likely to be feeling the pinch and some may be looking at other options and considering the future.
One option may be to look at a bolt-on to a larger practice or a merger with a firm of similar size. Bolt-ons are hardly a new thing, with sole practitioners having for years disposed of their client base by amalgamating with a local firm prior to retirement or closing of the practice. Currently though firms are considering this as a cost-effective option, as embracing the economies of scale can reduce the overheads per partner as well as also allowing work to be referred internally and thus maximising the client offering.
However mergers are not always a fall-back option. Whilst there are some firms with well-documented difficulties which have secured a merger, for other practices the merger is an opportunity to enhance the offering which they have. This can allow a firm to move into a new geographical location, to diversify the areas of law that they specialise in, or even to indirectly recruit talent at a competitor.
The result? It is likely to be that in 10-15 years the legal landscape will look very different. Towns which presently have 4 or 5 large firms may be reduced to 1 or 2 major players; an example of this being in Wolverhampton where FBC and Manby Steward Bowdler merged to create one large firm which is far and away the largest practice in the area. Similarly firms who are looking to reach the next level in terms of turnover and headcount can pool their resources, as happened with Shakespeares and Putsmans in Birmingham in 2007 where the new larger practice was quickly elevated to the second tier within the city; since then the new firm have confirmed the subsequent merger with Needham & James with further mergers suspected to be in the offing.
At present VG Charles & Co are speaking with a number of firms regarding merger opportunities on a national level, including brokering meetings between Legal 500 firms. Some of these are practices looking to establish a base in a new city and are looking to do so by linking up with a firm who have a presence in the area; others are practices who can see that the benefits of a merger with firm of a similar ilk to increase their local standing for mutual benefit.
As the market continues to improve the number of firms looking to increase their geographical spread will continue to rise, often by bringing established local names into the partnership as the promise of investment and increased equity proves enticing to firms which have struggled through the recession and realised how fragile the legal market can be for a stand-alone practice.
The golden period of the merger has just begun......
Are you interested in discussing merger/acquisition opportunities in your local area? Are you looking to bolt-on your existing practice to a larger firm, with a loyal client base which can be successfully amalgamated? Contact one of our specialist merger broker consultants at VG Charles & Co on 0121 233 5000 to discuss the way forward. Alternatively visit our website www.vgcharles.com.