Strategic Growth: The Role of Mergers for Small Law Firms in 2024

The number of law firms considering growing through mergers or acquisitions has dropped from 13% to 10% in the last year, according to recent research published by Lexis Nexis. The research showed that smaller law firms have the biggest appetite for M&A-driven growth, with a third of firms taking part in the survey looking to grow this way having between 11 and 20 fee earners, while 28% were sole practitioners. Surprisingly, none of the firms with 20+ fee earners were considering a merger or acquisition. Growing the client base and increasing profitability were identified as the main goals for a merger, whilst the barriers to merger were concerns about finding the right partner and the loss of autonomy. So, whilst merger activity looks as though it may slow over the coming year, for those smaller law firms considering a merger as a means of growth, what are the main things to look out for to ensure a successful merger project?

The business case 

Be 100% clear as to the reason you are merging. If you can achieve your strategy without the need to merge or acquire another firm, then do so. Remember that there is no perfect merger partner out there, so take time to get to know each other and compromise by both parties is likely to be necessary along the road to integration of the two businesses.

Take your people with you

Ensure your partners are on board with the idea. Regular communication is essential to ensure all partners remain “in the loop” and understand the benefits of creating the larger firm. Be open and honest with your staff and support them through the process. Focus on the big picture and why the new entity will be improved and the benefits that will bring for your staff.

Devote sufficient time and resources to the merger project

Do not underestimate the time and effort it takes to successfully put two law firms together. IT systems will need to be carefully considered. Try to use one IT system on go-live and avoid using two legacy firm systems. Building a sense of identity and belonging to the new firm is important, but harder to achieve if the old IT systems are used.

Comply with the regulatory requirements

The SRA have recently produced a Warning Notice “Mergers, Acquisitions and Sales of Law Firms” on 17th June 2024 and strict adherence will be required. SRA | Firms should make sure clients’ interests are central in mergers and acquisitions | Solicitors Regulation Authority The SRA expects law firms to ensure that the protection of all clients’ interests is at the forefront of any decision-making when selling, merging, or acquiring another law firm. The obligation to act in the best interests of each client applies to any seller when negotiating with a potential purchaser of their firm.

Keeping clients informed of what is happening and allowing them to make unfettered and informed decisions is vital. Giving clients a reasonable amount of notice about what is happening is also essential. The SRA has provided guidance on how they expect client confidentiality to be protected during a merger project and details are available on the SRA website. For example, before client files are inspected as part of any due diligence process, clients’ consent will be required. Any breach of confidentiality is likely to result in a hefty fine for potentially both law firms.

With the current challenges facing law firms of all sizes, there are likely to be good opportunities in the marketplace to merge or acquire in the medium term, but only for those law firms that can demonstrate good management practices, profitability, and a good compliance record. So, the message to law firm leaders, even if you are not considering a merger at this stage, is to continue to professionalise your firm and make it as attractive as possible to a future merger partner should circumstances change. If you would like to discuss whether merging or acquiring another law firm is the right option for your firm, or assistance with the implementation and successfully putting two firms together, please contact me on 07916669095 or ih@hopkinslegalconsulting.co.uk.