Should you hold out for a merger of equals?

Should you hold out for a merger of equals?

On the wider strategic point of demanding a merger of equals when such deals are as rare as hens’ teeth is an interesting topic for discussion. Some may argue that it is better to hold out for what you want than “give up and be taken over”. Others may say that it should be obvious after a five minute scan of the financial and rankings tables which firms would meet your goals and if they are not interested after a couple of times of asking then one’s idealistic merger strategy is dead in the water.

It can remain tempting to keep holding onto an ideal even in the face of the facts. The more logical choice is to reassess one’s strategy and reconsider what type of merger is needed to get to where you want (and may need) to be, (and to consider if merger is even the right route to achieving your strategic goal). To quote John Maynard Keynes when challenged over his reappraisal of a major piece of economic theory: “When the facts change, I change my mind. What do you do, sir?”

It should also be added that even if two firms achieve this utopian vision of merger equality there is no guarantee that any of the attributes ascribed to it will manifest themselves. Once combined there is no reason why one firm’s culture will not subsume the other, or that partners of either legacy firm will not exhibit destructive behaviour. Moreover, someone has to be in charge and even if there are co-managers from each firm for an initial period, eventually certain individuals will assert themselves as leaders regardless of where they first came from. In which case it is fair to ask: what is the point in even seeking such parity? Isn’t it really quite irrelevant?

Does it really matter if your firm is smaller than your merger suitor?

Does it really matter if a firm cannot achieve a merger of equals? On balance the answer has to be “no”. In most cases partners will find that being part of a larger combined firm is not such an “us and them” experience, at least if management makes the effort to integrate both partnerships rather than allowing them to stay separate, whether that is due to isolated offices or partners who don’t (or won’t) communicate. Once combined the partners literally have a new firm and for each individual there is everything to play for within it.

What may be lost is the dominance of certain partners over their personal fiefdoms, or the ability of certain opinion formers to steer a smaller firm but which might be diluted in a larger democracy. But is that a bad thing? One item that may be lost that may be genuinely mourned for is the loss of a famous and long lived brand name that is absorbed, then faded out by the merged entity. Though, given the trend toward shorter and shorter brand names this does appear to be inevitable. Choosing not to merge for the sake of permanently holding onto a brand name is a very brave decision.

Mergers of equals sound ideal and the few that occur may indeed be very successful, though in reality they are likely to be no better or more successful than most other mergers. Moreover, the many factors that need to be aligned to allow a merger of equals to happen is a major barrier. In turn this tends to make such an objective strategically dubious. If such a deal happens then this it is to be welcomed, but to make it the only option seems far too limiting when a firm’s future is being considered. Better to think of what will deliver the change the firm and its clients really need, rather than limiting yourself right from the start.

Richard Tromans, Founder and Consultant, TromansConsulting  –

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About the author:

Richard helps law firms with important strategic decisions. He advises on areas such as merger, practice development and geographical expansion. He also provides assistance to law firms in relation to organisational and operational issues.

Richard has spent over 16 years working in the legal sector focused on the UK and global legal markets. He previously worked at Jomati as a strategy consultant and authored the Jomati Report series between 2009 and 2014.

Prior to that, Richard worked at US-based, Hildebrandt International, and also held senior, legal sector editorial roles in London and Paris.