Why do some mergers work but others do not?
The answer is 6 P’s – Prior Preparation and Planning Prevents Poor Performance.
This is the £1m question and the simple answer is that the losers frequently conduct the process in a casual fashion, with little structure. Those firms who tackle mergers with intelligence and planning will be the winners. As Kenny Rogers will confirm in the final paragraph!
Over the years we have developed the ‘Go-Path’ template internally as a check-list to make sure our clients have completed the initial high-level thought process. It has six parts, all of which should be completed as the merger procedure rolls out. These may seem too “management-speak” if you are running a small firm, but even for a sole practitioner thinking them through will help achieve your goal:
If the Go-Path concept is followed then checks and balances will either progress the matter towards a successful conclusion or there will be an exit before any damage is done, certainly before too much money is spent. Incidentally, it is far better if both parties follow this methodology together and exchange information at each stage.
Goals. Both firms should have documented goals. These should be contained in existing business plans. If such work has not been done then this area should be revisited. This needs to be done before any search for a merger partner takes place and helps the research and choice of merger targets as well as facilitating an informed discussion when initial meetings occur with targets
The next part of the methodology should be a critical examination of the goals and aspirations of the two parties and how these aspirations will be carried over to the new firm. This should include input from strategic plans, partners and key staff. The output from this work will include clear concise statements like “double revenue in the next five years”, “expand into the Thames Valley”, and “build up the tax and probate department”. These goals should be founded on the baseline of current financial performance. It is worth noting the advantages of an early acquaintance with each party’s goals and of being able to work towards them becoming common goals – or perhaps finding out that they could never be the same!
Objections. It might seem negative to focus on objections before the merger project gets off the ground, but it will save time and help focus minds. Objections come from people – so this is a people issue. Objections to mergers are usually split into two categories. One set of objections is about strategy, direction, ability, capability, skills, etc. In other words, concerns about where the business is going and its ability to get there. The other set of objections is about redundancy, change, demotions, loss of status, moving location, etc. In other words, concerns of individuals and how change will affect people welfare. “Will I be good enough?” is often a deep-seated people concern that manifests itself in myriad symptoms, all of which will conspire to defeat the best of intentions. Sometimes these personal objections will not come to the fore immediately. This is a real issue and one that must be constantly monitored. Either way there must be a conduit for objections. It is best if there is a formal process and one that is blame-free. Never ever castigate someone for bringing a potential problem forward. Obviously the issues that are not personal are easier to draw out. People will quickly express their concerns about the computer systems, whilst they will hide their personal issues.
Process. A merger must follow a process and should have a designated champion. It is beneficial to map out the steps that are to be followed and to make sure that all those involved know the phases and their responsibilities in each phase. The order of work is important. Whilst some tasks can be conducted in parallel others are sequential, particularly when the practices are being merged. Checkpoints must be put in place to review progress and to constantly check the logic of the deal.
Approval. Once you have your goals set, the champion should revert back to the partner group for approval on a regular basis. Do not leave this until the end of the deal make sure the Partner group is still committed and still behind the process. Additionally, the ongoing cost of the merger process, in money and time, should be transparent and approved by the partners.
Timetable. This should be formal and fairly rigid. There is also an argument that the timetable should be quite tight, thus avoiding procrastination and indecision – time kills all deals. The timetable should commence with investigation, include engagement, HOA, due diligence and completion, and CRUCIALLY cover the actual merging of the practices and their infrastructures. Some mergers get very difficult when the two firms are finally moving together. There is a tendency for the tail to start wagging the dog. The IT department will say that it needs six months to merge the systems. The accountants will want three months to merge the accounts. The advice is to merge the law practices, run two systems and sets of accounts for a while, and start to benefit from all the reasons for merging the practices that were agreed in the first place. Many will disagree with this approach, but the need to reduce the cost of the transaction and to get the fee earners working at maximum efficiency is vital.
Help. All of this work is onerous and not to be taken lightly. It is time consuming and has a tendency to become a priority over the business of the practice. This is the time to engage experts. Whether it is the first action of researching potential targets or the programme management of merging the practice, the money spent on outside help will pay dividends.
Finally, under no circumstances must a merger become ego driven or continue when it becomes apparent that considerable surgery is required to make two practices compatible. As Kenny Rogers once said “You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away and know when to run.”