Law firm merger talk seems more in the air than ever, with deals and rumors of deals abounding and redoubtable resources such as Altman Weil’s MergerLine reporting record levels of activity.
We would like to believe we’re relatively impervious to being swayed by what’s in vogue (or what’s not), and we certainly do not inhabit either extreme camp, that (a) mergers are a universal solvent appropriately prescribed to mend the ills, real and imaginary, of any and all firms; or that (b) mergers never work and when they’re attempted they represent the triumph of hope over experience. (We know people who subscribe to each view, by the way.)
But we are firmly of the view that if you’re actively contemplating or even toying with the idea of a merger, you should start with cold hard data.
Putting money where our mouth is, we have built an analysis tool that generates a “Merger Score,” based on various inputs and filters you might choose to apply. Without going into the intricacies of Excel, it compares your firm to a universe of others (it’s prepopulated with the AmLaw 200, but we can add others at will) on the following metrics:
- Gross revenue
- Net operating income
- Profits per equity partner
- Revenue per lawyer
- Total number of lawyers
- Number of equity partners
- Total number of partners,
- And equity to total partner ratio.
We can screen potential firms by ±XX% on any and all of these criteria, and see which firms fit within the parameters we set. So: Curious which firms are in a PPP band from 15% below you to 15% above you? And whose total lawyer headcount is at least 75% but not more than 100% of yours? And whose equity to total partner ratio is within 25% of yours? You get the idea.
Now, don’t jump to unwarranted conclusions.
The “M-Score,” in and of itself, is just what we said it is: Data.
Data is never a substitute for human judgment (except when it is, but that’s a conversation taking place in another room), but we firmly subscribe to the view that in this area—law firm mergers—if you don’t start with data, you better have a bulletproof pre-nup in place you’re asking for trouble. More specifically, you’re going to be thrown back into primary reliance on the Beer Test: “Would I enjoy having a beer with these folks?”
Fine for the hotel bar, not advisable for the future of your firm.
If you’d like to hear more, you know where to find us.
Meanwhile, happy hunting.