Does a merger always mean the smaller firm gets swallowed up?

Well-established legal practices in need of long-term growth prospects often turn to mergers and may look towards smaller firms to help them achieve their aim. But what if the firm is small? Is it really at risk of being swallowed up by a larger firm wanting to nab a bigger share of the market? Or can both firms work together to secure an enduring joint legacy going forward?

The legal landscape in the UK is one of the most rapidly changing sectors. And just thinking about combining two successful entities and forming one great practice — larger revenue streams, market share or costs reductions through consolidation — can be irresistible. There is a real business argument that large firms could benefit from actively considering partnering with smaller firms rather than assuming full control. If a larger firm is in the process of taking over a smaller firm it should think about what attracted them to it rather than simply expecting it to adapt by abandoning the processes and systems that probably made it a desirable and unique proposition in the first place.

Reasons for smaller firms getting swallowed up are many and varied, but they commonly fall into the following broader categories:

Bureaucracy

Whether this is intentional or unintentional, large practices tend to have more layers to their approval processes than smaller firms, and whilst it is sensible for larger practices to have tighter controls, it makes little sense for smaller ones. This can cause a lot of friction following merger.

Integration

In successful mergers, integration discussions take place a long time before the deal is finalised. Integration plans should be drafted and shared between both firms and a high-level framework formulated as to how the firm will operate post deal. This way, all parties and their respective employees are reassured by knowing what is going to happen and when.

Partners

In firms where there are only four or five partners used to making all the decisions, a change in thinking may need to occur before the merger takes place. Larger firms tend to focus on marginal efficiencies and improving processes that flow to the bottom line. It is usually when trying to get something simple approved, partners meet professional management, that they are most unprepared for the restrictions is places on their decision-making authority.

So we’ve discussed some ways smaller firms get swallowed up, how can it be prevented and their agility be preserved, post completion?

It cannot be stressed enough that communication is key. By fully defining how each firm will fit into the other at the outset and what roles employees at the acquired practice will play can ease the initial transition. Integration can be a painful process, but it doesn’t have to be. Taking a nuanced and empathetic approach shows respect for what the smaller firm has accomplished and created. Things such as payroll and accounting have to happen immediately, but there are other protocols and processes that can wait and, by introducing such changes gradually, it will help smooth the transition.

If possible, appoint a lead integrator. An individual who is responsible for operations, finance and staffing, for example, who understands the issues that can arise. They should manage everything following completion of the merger and navigate the newly combined firms into the interim future. Ultimately, both firms must ensure they carry out their own due diligence in order to obtain the merger they are happy to take forward. And if those cultural and integration difficulties can be managed appropriately, both firms can benefit from the merger and grow together.