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Q: I’m a partner at a one-office firm in a major metropolitan area. Over the last six months we have received three to five inquiries a month from large, multioffice national firms that want us to merge into them. We spend hours discussing these proposals, but we’re not sure if we’re analyzing them correctly. What should we be looking for? A: Mergers should be viewed as tactical maneuvers undertaken to achieve a strategic vision. If you’re not sure how to analyze a merger inquiry or if you’re spending an inordinate amount of time considering and debating them, you probably don’t have a clearly articulated, shared vision of where your firm should be in five or ten years. Once you know where you want to go, it’s easier to figure out how to get there. Your vision should speak to how you compete for talent and clients. What market niche are you seeking to serve? What geographic reach should your practice areas have, and what kinds of clients, as defined both by industry and geography, would you like to serve? What areas of expertise do you want to emphasize? And where do you want to be on the fee scale — doing price-sensitive commodity work, high-end work, or something in-between? If your vision of the future matches nicely with your suitor’s vision, it is usually worth pursuing merger discussions. Smart firms usually look first at the business case for a merger. Why does the acquiring firm want to grow? Does it simply want to get bigger for the sake of getting bigger? Is it trying to move upstream to a better, more profitable practice area or expand into a desirable locale like a money center? Would your leading practice areas be strong when theirs are weak, and vice versa? And might there be another potential suitor out there who would be a better fit for you? (Firms often forget to ask themselves that question.) I’ve observed that generally, the reason that firms seek mergers has shifted over the past 10 years from geographic expansion to practice-area expansion — adding and deepening practices. I believe that enhancing profitability will emerge as the principal driver of mergers, and highly profitable firms and practices will soon command a premium payment in law firm mergers. Once you’ve determined that you and your suitor have a shared vision for the future, the next step is to find out whether your firm’s cultural values match your suitor’s. Most firms consider the cultural match to be as important as the business rationale. Cultural issues manifest themselves in a variety of ways. Compensation systems are one key indicator, although that is not to say that widely divergent compensation systems always stifle a merger — witness the merger this year of lockstep shop Clifford Chance with eat-what-you-kill Rogers & Wells. What attributes are rewarded by the compensation system, and how are they weighted? Likewise, the method that a firm uses to select its leadership (for instance, is it consensus-based or self-perpetuating?) says a lot about firm culture. Another key indicator is how actively a firm is managed — do individual partners manage their own practices, deciding which clients and matters they take on (within conflicts guidelines, of course), or does the firm have guidelines, rules, or committees that make intake decisions? Is there a requirement that new clients be creditworthy? Some other cultural questions to consider: Why are the lawyers in your firm and the other firm practicing law? Is it a means to an end, such as making a lot of money, or do they practice for the enjoyment of working with clients and doing challenging work? How important is money in the overall equation of practicing law? Mergers happen either when cultures are very similar or when one firm perceives a need to change and finds a suitor that follows a better path. Partners at smart, sought-after firms will also consider more than just their own impressions of the quality of their suitor. If they share clients with their suitor, they ask those clients about the quality of the suitor’s work, orientation toward service, and relationship-building skills. They also ask friends in the legal profession. Occasionally they ask consultants to make these inquiries for them, either to preserve their anonymity or to allow the client to speak more freely. Peter D. Zeughauser is a legal consultant in the Corona del Mar, Calif., office of ClientFocus. He is also of counsel at Claremont, Calif.’s Shernoff, Bidart, Darras & Dillon.

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