By Legal Futures Associate Acquira Professional Services
Despite the enthusiasm for private equity, the reality is that mergers and acquisitions (M&A) are going to be a far more realistic growth option for most law firms.
The deals we have seen over recent years, at all ends of the market, show there remains a considerable appetite to make things happen.
When we’re acting as the matchmaker, we are looking first at the objectives of the firm that is looking to acquire. Then there has to be a partner and cultural fit. The latter in particular is not an exact science. Sometimes it’s obvious – you don’t pair a progressive IT-focused practice with one where the partners still hand Dictaphone tapes to their secretaries – but often less so.
Indeed, a lot of firms cannot tell you what their culture is, although it largely comes from the management team. Plenty of firms have snappy taglines that supposedly capture their culture but these usually reflect generic ideals of trust and competence to which every law firm aspires. If we have to read another law firm website that promises to marry traditional values with a modern approach, we might have to give up on the internet altogether.
So for firms considering M&A, you need to think carefully about your culture and what you are looking for in a potential partner. There is a difference between having values – sometimes drawn up with the help of an expensive external consultant – and actually living them.
Acquira has developed a relationship with Brands with Values, a consultancy whose main offering is a ‘Culture and Inclusion Decoder’. Managing director Adrian Walcott explains that businesses do their financial due diligence on targets, but not cultural due diligence. “A lot of deals fall over because of a culture clash post-merger,” he says. “What we’re about is de-risking this so the owners can extract the value they want from the deal.”
The decoder – an academically rigorous test already taken by hundreds of thousands of people – is based on the premise that an organisation is “just an ecosystem of people and how they behave”, he says. And it is values that drive the way they behave.
It is a “beautifully simple” three-question test that all staff take and “really allows us to understand how the ecosystem is operating”. Essentially it asks everyone: what are your personal values, what are the observed values of the organisation, and what kind of values would you like to see.
This allows leaders to see where two combining organisations are aligned and where they are not. “It can be very dangerous to assume that because the leaders all get along and are connected, so is everyone else.”
The decoder is very different from engagement surveys. These “manage satisfaction” and are effectively about marking leaders’ homework. They’re not about how you drive staff’s discretionary efforts to give you more.
Make no mistake, culture kills deals.
Cultures must fit for a merger to work. If they don’t, over time lawyers walk, taking their clients with them. Equity partners might be happy to put up with a culture they don’t like if it undisputedly gives them significantly more money through a favourable deal structure, but what about junior partners and associates?
For further information about M&A, download our latest report: Growth Agenda 2022: The New Era of Law Firm M&A here.
