Law firm mergers: Offloading a department before a merger

law firm mergers

 

 As the legal market in England and Wales continues to change, solicitors’ mergers and acquisitions are becoming more and more common. Consolidation within the legal market over the past few years has meant that larger firms are taking a greater share of the legal market, providing them with more power to compete.

This consolidation has led to many smaller firms considering their options, with law firm mergers being one route available. There are many factors that should be considered when deciding the future of your firm and ensuring a successful merger with another firm.

The rise in law firm mergers

Changes to the legal landscape from LASPO onwards have led to a number of firms deciding to make changes. This could be in the form of a sale or to merge with another firm. The changes which have led to a surge in law firm mergers and acquisitions in recent years include:

  • The introduction of the whiplash reforms in 2021
  • The extension of fixed costs
  • Issues in obtaining professional indemnity insurance
  • Issues caused by the Covid-19 pandemic

 In an everchanging market, law firm mergers seek to achieve greater economic stability for the combined entity. Following securing significant investment in Fletcher’s Solicitors, Rob Fletcher stated:- “There are a lot of acquisitions going on in our industry at the moment as people realise that the future is firms that have the size to compete.”

It was interesting that the point was the number of acquisitions. The perfect “fit” to achieve a true merger is relatively rare, more often than not there will be an acquirer. Regardless of terminology, merging with another firm may give solicitors the opportunity to branch into a wider market when they become part of the merged entity. This type of business change may provide the new firm with more strength and stability to allow them to compete with larger firms in what is a very competitive market.

 

Law firm merger considerations

To ensure a smooth transition post-merger, there are a number of things that should be considered prior to the merger taking place. Some of the main points to consider are listed below:

Seek appropriate advice: Business change, such as a solicitor merger, requires a lot of planning, advice and guidance. The process of merging two businesses to create a completely new entity can be extremely complicated, so you should seek advice from a merger and acquisitions specialist to ensure due diligence and compliance with all regulatory requirements. This is something you will do infrequently, if not just the once, unless you are a serial acquirer. If you are dealing with a serial acquirer then you are in essence selling, making an independent adviser more critical. There are a number of such advisers that have developed a specialisation specific to law firms.

Inform the SRA: You should always keep the SRA updated on any changes to your firm, including plans to merge with another law firm.

Inform your clients: You should keep your clients updated on any changes to your firm to ensure good client relationships are maintained.

 

Exiting a market before a merger

As part of the new entities long-term plan, there may be a desire to discontinue servicing a specific area of law after the merger takes place. In this situation, the decision may be  to exit that area completely before the merger takes place.

Selling work in progress (WIP) files to exit a specific market can be a positive solution for merging law firms. It can help them focus on more profitable areas of law once the merger is complete.

Recovery First have worked alongside professional advisers, such as merger and acquisition specialists, on many law firm projects. We discreetly sell a firm’s cases to multiple purchasers on our panel of solicitors. This mitigates the risks to the buying firms and results in a higher value for the work in progress (WIP) being realised by the seller, whilst ensuring SRA compliance.

We are an accountancy service provider that has built specialised software and processes to liquidate the full value a law firm has locked into WIP over time. We monitor case progression and conclusion in real time and account back to our clients for the value realised on an agreed reporting period, either monthly or weekly, thereby de-risking a deferred deal from the seller’s perspective.

Our process is highly flexible, and many firms have greatly benefitted from exiting a market when merging, to dispose of a caseload within a legal area in which the merged entity does not wish to continue operating.

 

Alternatives to a solicitor merger

Although mergers are a great option for many firms wishing to change their business model due to changes in the legal market, they are not the only option, and there are some good alternatives. One of the main alternatives to law firm mergers involves restructuring the firm and exiting specific markets to focus on more profitable areas of law.

Recovery First have many years of experience in assisting on these types of projects. In some cases, we can facilitate immediate cash availability to deal with immediate exit liabilities when restructuring.  As our process is flexible, the exit from the market can be completed in a way that best meets the needs of the firm, with many firms opting to exit the market using a phased approach.

 

Why choose Recovery First?

 

Whether you opt for a law firm merger, or an alternative, such as restructuring, Recovery First can help. The unique scheme offered by Recovery First is suitable for law firms and professional advisors, including accountants, merger and acquisition consultants, restructuring and insolvency practitioners, corporate recovery specialists and private equity firms. Our services are suitable for all types of legal work, using a simple, ongoing process with no up-front costs.

We guarantee 100% confidentiality for all clients. If you would like to find out more about Recovery First’s process, feel free to get in touch today via email at david.johnstone@recoveryfirst.co.uk, or 07887796989, or contact Sally Dunscombe at sally.dunscombe@recoveryfirst.co.uk or 07774 205 870..

 

It's never too late to speak to Recovery First. Contact us now in the strictest confidence

Sally Dunscombe:

07774 205 870

sally.dunscombe@recoveryfirst.co.uk

David Johnstone:

07887 796 989

david.johnstone@recoveryfirst.co.uk

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