Readers may recall that, during the Summer last year, we hosted a Legal Succession Strategy Webinar Week, where we explored the state of play in an M&A sector that had hit something of a low in the years leading up to the COVID-19 pandemic.
Since then, we have been keeping a watchful eye on the direction of travel in M&A and, while we have been seeing an increase in traction over the course of the last year, it has been steady rather than explosive. That has made us wonder whether there is pent up energy waiting to be released.
Despite the clear challenges presented by COVID-19, we have seen an increasing number of firms sitting on fairly large cash reserves as a sort of 'war chest' while we all waited for normality to return. At the same time we also saw lots of firms having really great years, and this has been a common theme in our recent legal survey, run in conjunction with the Law Society’s Law Management Section (LMS), which will be released shortly.
And with that in mind, will we be seeing those high performers looking again at their succession strategies, their growth strategies, their M&A plans – whatever you want to call them? Will they be looking at how they can anchor their positions and achieve growth in a market that is emerging from the pandemic, albeit in pretty good share overall?
As part of our Legal Succession Strategy Webinar Week, we discussed these issues with David Sparkes, law firm M&A specialist and CEO of Milbourn Ross, and gained some fascinating insight.
Pursuing a growth strategy
Growth comes with a warning. However strong the market may be, growth will not come and find you and a passive strategy is not really a strategy at all. If growth through M&A is part of your long term ambitions, then you need to put in the legwork and plan properly. A firm that expects growth to come without tirelessly researching and proactively knowledge gathering, will be a firm that is left disappointed at best and falling behind the herd at worst.
So, what are the really critical things firms should think about when considering a suitable match?
Value Proposition
Having clarity about your value proposition and being able to articulate it clearly is vitally important in any M&A process.
Whether a firm is acquiring, merging or selling, in addition to asking themselves 'what’s in it for me?', they must ask 'what’s in it for the other party?'.
Investing time to scenario plan and play out the various questions or directions that conversations may take will be invaluable.
Preparation
Businesses that display good corporate governance, financial best practice, operational and administrative organisation are significantly more appealing to acquirers or lead merger parties.
Firms should take a pro-active approach to preparing the business for conversations with third parties.
The list of considerations when preparing your firm to pursue its M&A strategy should not be underestimated, and this is where getting outside support becomes important. The focus will invariably be on the firm's core business as a provider of legal services, but the due diligence journey is long and multi-faceted. Unforeseen insurance as well as regulatory or technological issues can easily stop a merger in its tracks, and a simple exercise of listing all key risk factor at an early stage can help avoid problems down the line, especially when expert input is needed. This list should also include thoughts around property issues, workforce considerations, corporate governance, online presence and key suppliers.
Of course, do not forget the really critical things such as clients, but do not obsess over them at the expense of everything else.
Keeping an open mind to the approach is key. If you go into the challenge willing to adapt, you may even find you enjoy the process.
Watch the complete Legal Succession Strategy Webinar Week here.
David Sparkes
Millbourn Ross