The trend towards law firm mergers, particularly in the UK market, continues apace and there is no reason to believe that it will slow down. Quite the opposite one suspects.
Synthesising two law firms represents a huge challenge, even if the balance sheets and P&L accounts are relatively harmonious. The challenges associated with blending culture, values and behaviours are well understood.
Less well understood and in fact often largely ignored is the compatibility of the two firms pricing cultures, resources, governance, and execution. Most law firm partners, and management would acknowledge that there is often little cohesion on pricing in their own firm, let alone adding another firm to the mix.
This failure can manifest itself in significant problems, particularly where clients of a lower cost firm are being integrated into a higher cost acquirer. If not well managed, the merged entity may well haemorrhage a lot of the more price sensitive clients. Alternatively the incoming partners persist in charging ‘their’ client at rates well below what is expected in the newly merged firm.
We have frequently written about the four pillars of pricing best practice in law firms; governance, analytics, execution, and technology. But few firms have made a concerted effort to excel in all of these areas. To have done so, represents the exception rather than the norm, at least for now.
It follows therefore that bringing together two disparate firms will only amplify and aggravate any existing weaknesses in either or both firms approach to pricing.
When it comes to operational issues, there is in our view nothing that trumps pricing as the single most important factor impacting firm turnover and profitability. This is not to decry the importance of managing fixed and variable costs or the importance of business development and other such initiatives.
But, at the end of the day, they count for nothing if a firm can't extract by means of a fair pricing structure, the maximum return from the value being delivered to your clients.
Increasingly, firms are taking the whole issue of pricing far more seriously. The new post-merger firm has the opportunity to start with a clean canvas and completely reinvent itself under the banner of pricing capability.
We have the knowledge, expertise, and professional sensitivity to undertake an analysis from which we produce a Pre-Merger Pricing Report for the merger parties that will provide deep and actionable insight into pricing attitudes and practices in the two firms.
This report and ancillary advice provide a robust platform to enable the parties to address early and effectively any pricing attitudinal and/or execution asymmetry and inform the partners and management on areas for potential improvement.