Obstacles to mergers are often created by conflicting cultures and working practices, and if individual egos give way to a willingness to look at new ideas, success is likely to follow

From the day you start in this profession, someone is always telling you “how we do it here”, and why “how we do it” is best. As you progress through your career, you move, sometimes within a firm but often to new ones, and are told instead, “that is not how we do it here”, and why their way is best. Eventually some will make it to the top of their tree, either through longevity or skill, and in turn will take up that well-worn battle cry themselves.

What these words indicate to me, though, is something a lot deeper, something that I believe often stunts and prevents some legal practices realising their full potential. What these words actually say is that there is a closed culture within a firm. There is a “we”, or more often an “I”, and there are processes in place that the incumbents are familiar with and don’t want to change. In essence, it is an attitude that can close off the business to new ideas, discourage bright talent from joining or remaining, and prevent potential mergers
or acquisitions.

In many ways, it is a very understandable position. People don’t like change and we as solicitors like it less than most.

What I’d like to consider is how these few words may be one of the biggest obstacles to a firm’s growth, in particular to mergers and acquisitions (and often the underlying reason why from time to time they fail), and perhaps shed some light on how to effectively remove them from your vocabulary.

Out with the old – the inevitability of mergers

To set the landscape, we are an ageing profession, with few senior partners below the age of 50 and many over the age of 60. For those with no succession planning in place, merger or sale is the only potential exit route. Add to this the increasing level of regulation in the profession, which has increased dramatically since, and partly due to, the recession of 2008-09, and the cost of just shutting up shop, which can be high (see my article “Time to sell up?”, Journal, June 2008, 44), and it is no wonder that we are seeing an increased level of merger and acquisition on our high streets.

I spoke with Douglas Mill of DM Consulting, who has been involved in a number of recent mergers, about his experience of the market. As always, he was frank and honest in his views. “There is never a true merger – there is always a dominant partner,” he said, and on that I tend to agree. Try though we might, neither Mill nor I could think of many “true” mergers at high street level. One firm is subsumed into an existing practice and, after a period of transition, ultimately conforms to their standards and styles. The more successfully this is done, the more successful the merger tends to be.

“So why are so many mergers currently taking place?”, I asked Mill. “The drivers are the age profile of the profession for sellers, and better utilisation of premises for many acquirers,” he replied. In many ways, that is a potentially perfect marriage, as each party seems to be getting something out of it. Many acquirers are sitting with assets underutilised, be it office space, systems or other resources. I can’t think of any other profession where there are so many competing brands on what are often small high streets.

Why, then, are more mergers not taking place, particularly in some of our better-provided-for high streets? This time Mill had a simple answer: “Egos. Solicitors can at times have very fixed views on their own importance in an organisation, and indeed that their own way of doing things is better.”

He went on to give a few examples of mergers that failed to happen for a variety of ego-led reasons, including a failure to agree which firm’s cashier the new firm would adopt. “Many prefer to remain a big fish in a small pond,” he added.

As our discussions concluded, we agreed that it seemed to be the smaller, less important personal issues that prevented businesses coalescing well. The problems, when encountered, were often a clash of cultures and the fact that each would rather keep doing things the way they were used to. So much of this was a matter of style rather than of substance, and seldom was either wrong – it’s just that “it’s not the way we do it here”.

A question of culture

I also spoke with Nicos Scholarios of MSM Solicitors, Paisley and Glasgow. Scholarios has been involved in the setting up of his own firm, a subsequent merger and the recent acquisition of Hart Smith & Co in Glasgow. He had a number of interesting observations to make.

When I asked him what drove their most recent acquisition, he told me: “We were looking to acquire a legal practice in a more affluent area than our current offices. We had spoken with several other firms, but with Hart Smith, the personalities and the way they did business fitted.” What was the most important factor in deciding to acquire Hart Smith? “The personalities getting along,” he replied. So for Scholarios, the way the two firms “did it”, and that the cultures matched, were the key factors that made this opportunity, rather than other similar ones, attractive.

I also asked Scholarios why he didn’t simply open an office in that preferred location. His view was that “The cost and uncertainties were far greater. Acquiring an existing business ensured cash flow almost immediately and avoided many of the expenses involved with starting from fresh.”

I found that an interesting perspective, and perhaps one worth noting for younger members of the profession who might be considering becoming business owners at some point in the future. High street legal practices are well known, trusted local brands. Client retention, particularly if an amalgamation or acquisition is handled well, remains impressively high.

Most firms that I have visited tend to do little by way of internal marketing to their clients, yet often, due to their professionalism and service levels, have strong repeat business and client referral levels. Acquisition for Scholarios, as for many others, allows a much greater degree of certainty than many might suspect.

On the integration of the new business, Scholarios’s thoughts were that the “essentials” were done quickly (cashroom and money laundering systems), but that a lot of the other issues (styles/branding/file maintenance) were all further behind, as “smaller firms have to prioritise more limited resources”. The feeling was generally that these were still largely done in the way they had always been, and a more “gradual evolution” would occur as and when the remaining partner moved towards retirement. Again, perhaps, an acknowledgment that there are core parts to a legal business that every practice must adhere to, while other parts are indeed only matters of style or process and far less important in the short term.

On the topic of further growth, Scholarios remained open to the benefits of acquisitions or mergers, and while not “actively” looking, remained open to opportunities. Both of us agreed that the value of legal businesses was low compared to most other business sectors, and that continued to make them attractive. Accurate valuations remained difficult to agree, but the general feeling was that around one year’s net profit, paid over time, was a guideline that seemed to be bandied around.

Openness, the key to successful integration

At the other end of the scale, Harper Macleod has grown from around eight to more than 400 souls, largely through organic growth and more recently by acquiring other firms, bringing in lateral hires and developing its own people along the way. As a relative newcomer to the firm, I have been fascinated to see how Scotland’s third-largest professional partnership has managed to build and maintain a culture that brought and held so many people together. I spoke with Laura Vernett, our marketing director who has been at the firm for 20 years, for her views.

Was the firm’s culture the same today as when it started? “The culture is the same. It is based on our vision and core values, and these haven’t changed although the language has evolved,” she answered. “We have a management group comprising, among others, the co-founding partners and that has contributed to a consistency in our core values.”

What benefits has the firm had from these core values? “It has created a feeling of opportunity,” Vernett explained. “It has allowed us to develop some of our trainees through to equity partners and support staff through to paralegals and solicitors. We welcome ideas and innovation, and when on occasion these don’t work, we don’t see that as a negative for the instigator.”

To me that seemed to be the key to success. It is the openness to new ideas and the opportunity to allow people to have a go without a fear of failing that I think more businesses need to adopt.

Time and again when I’m faced with a problem, the solution seems most clear when I ask “What does the client/stakeholder want?” To rephrase the heading of this article, perhaps what we should be asking is “How do you think we could do it better here?”

Two-way communication

I asked Vernett whether, in the mergers Harper Macleod has been involved with, it is just a bigger case of “that’s how we do it here”? “No, we’ve been willing to listen to and understand other firms’ processes and adopt them where they are better.

“The key is to reinforce and retain our core culture and brand values, the building blocks of the firm. We have instigated programmes to better enable integration of new teams, encouraging engagement from both their side and ours. We see it very much as people meeting people rather than firms or teams.”

I realise that many firms simply don’t have the resources to deploy, and I asked Vernett if there was any simple advice she could give. “Communicate and engage,” she responded. “Whether there are five or 55 staff, engage with them. Communicate your firm’s vision, values and objectives, and reinforce that everyone has a role to play in achieving them. Make sure this communication is two-way – ask for and listen to feedback.”

From my own experiences, I see that the high street is thriving and, I suspect, will continue to do so for some time to come. The weight of numbers, though, tells us that mergers and acquisitions must speed up due to the large number of business owners reaching retirement age. Just doing it “the way we do it here” seems to me to be no longer enough.

The big question is, can firms embrace cultures that will allow these mergers to benefit both outgoing and incoming proprietors? Perhaps better still, can firms welcome new fee earners and make them feel like “the way they do it” can make a difference here?

The Author
Stephen Vallance built up and sold his own legal practice and now works closely with many high street and rural law firms across Scotland as part of Harper Macleod’s HM Connect support and referral network Stephen Vallance is a Sector Development Lawyer with Harper Macleod LLP 
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