There’s never been a better time to think about Buying or Selling your Law Firm.
Buying a Law Firm is Law Firm Growth on Steroids. And Selling your Law Firm can be your Perfect Exit Strategy-
But Growth by Acquisition can be tricky business – Making this strategy work is all about picking the right firm, at the right time, at the right price and going about the purchase the right way.
In Part 1 of this 2-Part Series on Buying and Selling Law Firms, I introduced the concept of Law Firm Growth by Acquisition – including how to know if it’s a wise move for your firm – and some of the questions you should ask yourself when it comes to buying and selling a law firm in today’s market. If you missed Part 1, or just want a quick refresher,
WHAT TO DO ONCE YOU’VE FOUND A FIRM TO BUY – WHAT NEXT?
Don’t try to do this on your own-
It’s like a personal injury client representing themselves in court. Not smart.
Instead, seek out an experienced Law Firm Broker- someone who understands how law firms operate, and has experience in helping other lawyers buy or sell law firms.
It is easy to become overwhelmed by all the financial, operational, and marketing details that surround an acquisition. But here’s a secret to making it come together: A successful acquisition rides heavily on what you do before consummating the deal.
Below is a checklist guide to help you as you move forward with your acquisition.
*Note that this list does not include the additional financial, tax and legal due diligence issues- For those I encourage you to consult with your CPA and attorney.
The Pre-Deal Assessment CHECKLIST
- Professional Valuation: Hire a qualified valuation expert to assist you in valuing the firm you want to buy. Using an experienced outsider can remove much of the emotion and subjectivity from the process and bring needed clarity.
2. Look for Hidden Costs: There is no substitute for due diligence. Are there current undisclosed financial costs or ones that will arise in the future- such as a disgruntled client preparing to file a lawsuit? Also, make sure you consult your state bar to confirm that none of the lawyers in the new firm have prior or pending complaints.
3. Attractive Financials: Does the perspective firm show a history of two or three years of consistent growth with all projections pointed to similar results in the future? Is there significant overhead that will make the deal more costly than necessary?
4. Organizational Structure: What will the post-deal law firm look like from a management structure and personnel perspective? Go ahead and map out the potential structure, knowing that some details may change. Taking this early step will help you identify potential redundancies, job title problems, and structural issues that need resolution.
Plan for Integration Challenges:
Combining two separate firms together can be fraught with potential headaches. Raised with differing cultures, management styles and expectations, the two factions are likely to eye each other with some degree of suspicion and even a little initial fear.
- Cultural Differences: How different are the two cultures? It is important to understand this critical factor before agreeing to a deal. If the two cultures are vastly different, it may be virtually impossible to reconcile the two. In fact, cultural incompatibility is one of the biggest reasons acquisitions fail.
- Contrasting Management Styles: Depending on the nature of the deal, management styles may or may not be a significant issue.
- Layoffs and Reassignments: If layoffs are required, start planning for them early. You should be prepared to develop the necessary internal messaging and answer the inevitable staff questions. While you may not be able to foresee every personal change you will need to make at this early stage, it is still important to draft a preliminary list so you are better prepared to confront these challenges before they become urgent.
- Job Titles: Job titles and their associated responsibilities are not universal in every law firm. You may be surprised at the differing ways in which firms denote and delegate responsibilities via job titles. Reconciling these differences when combining two law firms can be maddeningly complex, so it is best to begin understanding them early on.
- Talent Retention: Don’t just assume that the new firm’s talent will remain in place. Look to see if these is anything in the deal or its aftermath that could trigger a brain drain. For example, is their top litigating attorney going to leave if there is an acquisition? Address these concerns early on, before any exodus begins.
- Uncertainty and Morale: Employee fear is a natural part of almost any acquisition situation. Err on the side of caution by providing more information to employees as early in the process as feasible. Communicate how the deal will create new and positive opportunities that will benefit the staff. However, be transparent about any potential downsides as well. It is understandable that employees will want to know how this business venture will affect them.
- Address Employee Benefits: In an ideal world you would simply take the most generous employee benefits from each law firm and implement them for everyone post acquisition. While that is the easiest solution, and one that makes everyone involved happy, it is not always a viable option. Evaluate each benefit carefully.
- Health Plans: Compare the two firms’ current health plans. How different are they? The reality is that losing good insurance can be a deal breaker for some employees, for whom a robust health plan is necessary. Can you afford to take on the better plan?
- 401K: Evaluate both firms’ current 401K plans. Determine how you will resolve any differing aspects of these retirement plans. As with health benefits, this can be a major issue for some employees.
- Additional Benefits: Vacation, sick leave, flex time, remote work options, paid parking, etc. There are a multitude of benefits and policies that, if scaled back or revoked, can affect employee morale. Thus, it is important that you take the time to compare the two firms’ employee manuals so that you make acquisition decisions with your eyes wide open to potential issues that will need resolution.
- Create New Employee Manuals: Begin putting together new employee manuals that will update and replace your existing employee manual. The new manual should be ready to roll out on the day the acquisition occurs, so there is no unnecessary ambiguity or confusion for your employees.
- Create a Communications Plan: You should begin thinking about how you will explain the new acquisition to both sets of employees, current clients, as well as the world at large. If you don’t control the narrative, then others will fill the vacuum with unpredictable results. Thus, developing a communication plan pre-acquisition puts you in the driver’s seat and equips you with the messages you need to set up for long term success. Here are some key components to consider:
- Immediate Audience: You have three important audiences to address: 1) employees, 2) clients and 3) prospective clients. You should also consider other audiences as well, such as referral sources, strategic partners, and prospective employees.
- Key Messages: Begin by identifying each audience’s likely objections and then craft messages designed to overcome those objections. Lay out a positive vision for the merged law firm moving forward.
- Communication Calendar: Create a Communications calendar for approximately 6 months post- acquisition. The plan should be designed to communicate your carefully orchestrated message to each intended audience. Decide what messaging you wish to provide and at what frequency to each targeted audience.
- UPDATE YOUR MARKET PLAN
You are undergoing an acquisition for a reason: to grow your law firm. Once the acquisition is underway, it’s time to profit from this significant investment. Determine what changes you need to make in your marketing strategy and update your marketing plan accordingly. Here are a few questions to ask yourself as you retool your marketing plan, post-acquisition:
- Will this deal provide a new audience? How will I reach them?
- Will I now have new services or expertise that I can promote and market? If so, what marketing plan is needed for this new area?
- Will the acquisition position me to enter into a new geographic market? How will I raise visibility in the new market so I can outflank my competition?
- Do I need to invest in new tools, training, or personnel in order to accomplish these new goals?
The above list should serve as your starting point.
While many acquisition follow a similar general plan, no two acquisitions are identical. Thus, the above list of issues is not exhaustive, and cannot cover every contingency.
You will still need to perform your own due diligence and be prepared to encounter special issues unique to your particular deal. Once identified, add these issues and your solutions to your checklist.
Growing your law firm through acquisition is an exciting and lucrative way to expand your business. Whether you are currently just considering or evaluating a possible opportunity, are actively negotiating a deal or even in the thick of post-deal integrations, the above checklist and discussion should provide helpful insights and tools you can use to make the most of this growth opportunity.
IF YOU WANT TO LEARN MORE ABOUT BUYING OR SELLING LAW FIRMS, THEN PLAN TO ATTEND PILMMA’S BIG 1-Day Conference: Buying and Selling Law Firms, June 30, 2021, in New Orleans: For more information, Click here: https://www.pilmma.org/summit
** I’ve built and sold two of my own law firms and helped other lawyers in buying/ selling their practice. If you want help in Buying or Selling a law firm or are wondering if this is the right growth strategy for you, I’m happy to talk with you. Contact me at email@example.com or (800)497-1890.