To Merge or Not to Merge: The Key Challenges Merged Firms Face

Record numbers of US and UK giants ‘tied the knot’ with Australian firms in 2015, and some of that growth is expected to spill over into 2016. However, a recent study indicates many firm mergers have not delivered the benefits anticipated. So what challenges do they face? And what lessons can be learnt?

The Australian legal market became hot property following the GFC, with our resources, boom-backed economy and geographical and commercial proximity to Asia presenting attractive offerings to US and European markets. The flurry of mergers that followed threw firms and the industry into a state of flux, with partners playing musical chairs and clients squeezing prices even further.

But how have the mergers themselves fared? Gulland Padfield’s study reveals that, in reality, many firms faced a common cluster of post-merger issues, and failure to adequately handle these challenges culminated in negative outcomes for both the firms and their clients.

What were the top three reasons mergers underdelivered?

1. Insufficient focus on delivering client value post-merge

Many firms that merged due to a lack of clear direction in the market continue to struggle. This is because post-merger success is directly proportional to the extent to which merging firms can agree on and plan how they will most effectively capitalise on their new joint client pool. Servicing existing clients must be a priority.

2. Operational integration issues

Venturis Consulting Group advises that failing to develop a “systematic and comprehensive approach” to the integration of processes and systems well before the merge takes place is a serious mistake and will adversely impact business performance.

The technology platforms and needs of an individual firm will be different from a merged firm. Therefore, principals do well to invest in a legal know-how solution, which can offer mergers an integrated system that allows the combined firm to be truly globalised, with up-to-date precedents and practical legal resources, folder and document sharing, and significant reductions in the time it takes senior lawyers and partners to train junior staff.

3. Failure to realise a common vision and clashing firm cultures

Each firm has its own culture and governance style, which may clash with that of a prospective suitor, especially when that suitor is foreign. Tim Shacklock of Norton Rose Fulbright recalls of their merge: “Fundamentally it’s about culture – we were getting married,” he says. “Cultural challenges and [finding] common objectives […] are the most important aspects of the merger.”

Both management teams must, with sufficient clarity, identify the true strategic reasons behind the merger and how these align with the new business strategy.

An intensely competitive legal market, combined with a diminishing mining sector and devalued currency, are creating a decreasingly hospitable environment for global firms. Evidence of this includes news that Skadden will close its Australian office and two of the three founding partners of Chang, Pistilli & Simmons that merged with Clifford Chance will be departing the brand.

While firms should not rule out the prospect of a merger, they should give careful consideration to their reasons for wanting to merge, and ensure they agree on a thoroughly researched post-merger strategy that prioritises the interests of their clients.

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