Posted by JA Gordon of Legal Futures Associate face2face solicitors
Gordon: the history of mergers is not encouraging
This is the title of a book by Yorkshire writer Kate Atkinson and, if you like a corkscrew crime plot coupled with a wry look at life, I heartily recommend it. But it could also be the plaintive cry of solicitors reeling from the shock of all the changes assailing them.
It is hard enough to deal with the threat of competition from new sources with big resources but the effects of another ‘game changer’, outcome-focused regulation (OFR), have yet to be felt in real time. Any solicitor feeling vulnerable now is bound to feel a lot worse once the Solicitors Regulation Authority finds its muscles and begins to make examples of firms pour encourager les autres, even though the intricacies of OFR are still a mystery to many lawyers.
In seeking good news, some firms have tried to protect themselves against market changes by merger or acquisition. This appears attractive since it seems to offer a larger bulwark against new entrants, but the history of mergers, even in a more stable market, is not encouraging and often results in higher overheads, greater staff turnover and reduced profitability.
The reason for this is simple but not immediately obvious: all partnerships have ‘baggage’ which acts as a brake on their profitability and merged firms have twice or the baggage of unmerged firms. This makes it doubly difficult to improve performance and to impose a unified culture, often resulting in demerger or complete failure two years or so from the date of the merger.
Other firms have decided that a ‘Wait and see’ policy will bring them good news. This is a little like the grouse sitting quietly on the moor waiting for the Glorious Twelfth to see what happens. Just because no one is firing a gun at your firm now, does not mean that you have escaped the consequences of no longer being a protected species. The guns are out there and they are merely observing the weather conditions on the heather before they send in the beaters and open fire. Quite clearly this is not good news.
But, for those firms and lawyers who are prepared to be realistic about the brave new world of the reformed legal services market, there is good news and the basis of it is that various third parties have grasped a fundamental truth about solicitors – they are good at the law but many of them are not really interested in business.
I know there are sound reasons for this and I agree that one’s emphasis should be on giving the best advice to the client, rather than having up-to-date magazines in reception, but the big alternative business structures (ABSs) coming into the market are able to do both and it behoves any solicitor who wants to stay in business to find a way of running his/her practice in as efficient and client-friendly a manner as possible.
This is where the good news starts. There are now several conglomerates operating in the legal services market offering solicitors the business acumen, back office, bulk purchasing, mentoring and management training that they need. Some of these conglomerates are true franchises, others are brands with extras but they all have this in common – they are run by people whose combined business experience is greater than that of the average lawyer or firm and a relationship with them brings none of the disadvantages of merger or acquisition.
So, if you can hear the guns coming towards you, what should you do? Look around and compare the offerings of the conglomerates. If you are an existing firm, still doing quite well, it may be that you want a big brand, in which case the choice is obvious and we all admire their new TV adverts.
If you are a medium-sized firm, wanting to protect your brand but needing to reduce the overheads of a particular department, try a ‘speedboat’ – a franchise for that department using the franchise brand name and back office, to see if it brings the greater efficiency and profitability which is promised.
If you are wishing to start your own firm, look and see which of the conglomerates offers you the most for your money: is integrated and audited OFR part of the deal? Do they help you with your business plan? Do they have good relations with the banks, building societies and professional indemnity insurers? Do they offer bespoke legal software?
These are all the kind of questions which need to be asked in order to find the conglomerate which best suits your needs but, unless you are one of the top 20 firms with a big international practice or you are a truly niche practice, your business is at risk and the conglomerates are currently the only good news in town.
JA Gordon is a barrister and strategy director of Professional Business Structures Ltd, franchisor of face2face solicitors. She is also author of the acclaimed Chronicles of Eternity series of historical novels and ‘writer in residence’ at Shropshire Livemagazine
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