More than half (56%) of merger discussions between law firms are ending in failure with a third of firms spending in excess of three months in negotiations before the decision to halt talks is reached, according to the research, carried out by Smith & Williamson and involved more than 100 law firms which included almost half of the UK’s top 30 firms.
Fifteen percent of firms taking part in this research report spending more than six months in merger discussions which came to nothing.
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Giles Murphy, head of professional practices at Smith & Williamson, said: "Although some very high profile mergers were announced during 2013, the high level of failure and the time it takes firms to reach that conclusion, represents a huge waste of time, emotion and energy for management teams."
A third of participating firms see merger as a means to improve finances, which suggests that economic need is a key factor in driving merger plans and goes some way to explaining the volume of completed deals between law firms over the last year, despite a general upturn in confidence across the sector.
Murphy added: "Too often, firms see merger as a strategy in itself. But firms need to plan properly how they are going to develop their business and if they believe organic growth or lateral hires will be insufficient, merger may be a solution."
Participants included 14 law firms from the UK’s top 30. Eight of these firms report failed mergers in recent years, with two of these practices spending more than six months in negotiation despite the deal hitting the buffers.
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By GlobalDataThe survey also asked about completed mergers. Four in ten of the respondent firms had completed mergers in recent years and half of these spent more than six months in talks.
Merger aspirations remain high with almost 2 in 10 firms expecting to merge with another firm in the coming year while a further 1 in 10 are seeking a merger partner.
Murphy added: "If 30% of firms do achieve a combination in the next 12 months we will see a radically different structure to the market emerge."
Plan for success
Murphy said: "Merger should be seen as a possible way of executing the firm’s strategy, not as an end in itself. The objectives need to be clearly articulated and appropriate targets identified. Too often, merger discussions are described, perhaps politely, as ‘opportunistic’, essentially meaning a chance meeting between two firms who only, fortuitously, would be a good fit.
"Unsurprisingly most of these discussions fail, but our research suggests that finding this out takes an unnecessarily long time. Whether initial discussions are opportunistic or clearly targeted, firms need to identify early in the process the key issues that must be resolved. Rather than let these drift, they need to be addressed by both parties and if a resolution cannot be found, talks should end promptly avoiding an unnecessary waste of effort."
