Succession by Acquisition

February 10th, 2009 by Jim Cotterman

One of the expected drivers of law firm acquisitions is the succession and exit strategy needs of smaller firms, particularly law firms with under 20 lawyers, although this certainly this will affect law firms of any size. 

Many of these deals are being done because the senior group looks around and finds that they are short on talent immediately behind them who have the “right stuff” to carry the business forward.  There may be some rising stars further down the line, but they may not be ready in time and they may not stay very long if their assessment is the same as yours.  The best opportunity to monetize their interests (realize their buy-out expectations) may be to secure a deal with another firm.  Other viable options may also exist, but they will take resources and time to implement that a deal will not.

Yet there still needs to be a real strategic benefit beyond business continuity for doing a deal.  That benefit may be improved scope and/or scale.  Deals where one is simply “buying” clients, even when there is no “consideration” involved are risky to the buyer.  Note that most of these deals are not acquisitions in the traditional corporate sense where cash, notes and stock are used as the primary consideration.  Here the primary consideration is most often a compensation guarantee currently and possibly in the future upon exiting.  But I digress.  The very reason discussed above that may have prompted the senior partners to look for a deal is a warning to the buyer.  The buyer needs to understand the increased risk of acquiring a firm where the senior partners are moving out immediately or shortly after the deal closes if the rationale is along the lines described above.

This entry was posted on Tuesday, February 10th, 2009 at 12:59 pm and is filed under Mergers, Retirement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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