Succession planning for law firms
Thursday, 23 January 2020
It’s clear that currently there’s a lot of merger and acquisition (M&A) activity in the legal sector as we’re seeing increased interest from a number of law firms seeking to acquire B2B with an increasing number of equity partners coming up for retirement. How can law firms ensure smooth succession planning?
Succession planning is key for all law firms. Finding the right candidates early on to introduce as potential future partners is a clear and obvious route. Although in the short term this will no doubt squeeze profit margins, with the right candidate, the longer term should see an internal market of eager fee earners wishing to make that step up to partnership.
However, the real world is not that easy. Whether you’re looking to acquire a legal practice, or dispose of one, the considerations are often the same to ensure a successful merger/takeover.
Things to consider before committing the business to a sale/merger
- Strategic planning
- By the vendor: In a perfect world, two to three years of results that will stand up to due diligence should be available, where the vendor has been planning for a sale so any potential issues have been addressed.
- By the acquirer: A compelling reason for the acquisition. Whatever you want/offer, a lot of time can be wasted if a compelling reason for the move isn’t agreed upon by senior partners/the board early on. Whether the acquiring firm wants more of the same, something different, or just a particular client/fee earner, being able to sell the vision will be important.
- Consider financial wastage and areas that could be tightened up without compromising service quality.
- Projections and analysis of where the profit is actually made. Identifying profitable fee earners/types of work, can these be expanded upon to generate more profits?
- Value of intangible assets, such as will banks etc.
- GDPR, record keeping and client files
- Is the data easy to interrogate? Is it GDPR compliant, complete and reliable? Is there a system that can be relied upon or is it overridden regularly by the proprietors?
- Consider if your client data is as up to date as it possibly can be and how often clients are contacted. Check your will bank; when was the last time it was reviewed? For both sides, knowledge that there has been a recent opportunity to touch base with the client base will help determine whether there is a valuable asset there or not.
- A practice management system is an important tool and knowing that it’s up to date and any data transfer won’t be time consuming is an important factor.
The above are just some of the areas of succession planning to consider that will make you a more attractive prospect on either side of the fence.
Taking the practice to market
Whatever stage you’re at in the lifecycle of your legal practice, when you make the decision to take it to market for sale, it’s worth considering your approach. Whether it’s an open market exercise or if you’ve already been approached by potential acquirers, consider how you can create competitive tension without losing any buyers from the table. It’s at this point you may want to engage an advisor to guide you through the stages of marketing, negotiating and bringing any sale/merger to a conclusion.
If you’d like to explore the potential sale/merger of your legal practice, please get in touch.
Call 0330 024 0888 or email email@example.com
Corporate Finance Manager