The following column is by Antonio Leal Holguin, Director, Adam Smith, Esq. Antonio is based in Santiago, Chile, and spearheads our Latin America practice.
Mergers & Alliances: Proceed with Caution
Five Steps for Latin American Firms
In our recent Latin American Legal Market Whitepaper, we described how globalization, the more-for-less challenge (clients’ demand that you do more for less) and fierce competition are reshaping the region’s legal market. They’re forcing everyone to pay attention and make choices. In unprecedented numbers, global players and foreign firms are arriving in the region, oftentimes through mergers and alliances with Latin American firms. Combinations and alliances of local law firms are also on the rise.
Far too often, law firms seem to act under the premise that mergers and alliances are good per se. They’re perceived as progress. Bigger is better. This is particularly true of mergers and alliances with foreign firms: international is better than national, seems to be the slogan. “They joined an international firm, they made it!”
I’d like to approach the internationalization and consolidation trend from the local firm’s perspective. With so much noise in the market about it, it’s easy to overreact and make bad decisions. I suggest a five-step process for local firms to approach mergers and alliances:
- Ground Recognition: recognize the need to reflect strategically about the market and your place in it
The Latin American legal industry is undergoing a period of intense speciation (the process of law firms segregating themselves based on different business models, following the “taxonomy” structure proposed by Bruce MacEwen in his second book: “A New Taxonomy: The seven law firm business models.”) Competitors are making their bets. Some have gone for the full-blown merger with a global player, others for the Iberoamerican model, others remain independent, and so on. This is pressuring everyone who wants to survive and thrive to find (or reassess) its place in the market. And, because competition has never been fiercer, even firms that have figured out their place in the market must think hard about how to keep it. Indifference is not an option. You ought to be thinking strategically about the market and your position in it.
- Taking a stand: develop a plan or review your existing one
Next, you need to develop a plan, if you don’t have one, or review your existing one. As we’ve said it here many times, law firms that have a clear, compelling and distinctive strategy (and implement it) are more successful than those who don’t.
What does it mean to have a plan? It’s having focus and determining priorities, which lead to having a unique, distinctive value proposition. It’s answering the questions: whom do I serve, doing what and how? Having a plan requires choices. You must choose which opportunities to pursue and, perhaps more importantly, which ones not to pursue. You have limited resources, so you must prioritize. Once you have a plan, then consider how to make it a reality. Here is where a merger or an alliance may come in.
- Think, don’t feel: determine whether a merger or alliance would achieve your plan’s goals
Perhaps the biggest and most frequent mistake firms make with combinations and alliances is thinking that they’re an end in themselves. That the merger is the plan. It is not. It’s an instrument to achieve your goals. For example, if you’re a Bogotá-based firm and you want to position yourself as the go-to IP firm in the Colombian middle-market, then a merger with an IP boutique in Medellín probably would help you achieve your plan. If you’re a mid-size Chilean firm specializing in mining projects development and your clients are repeatedly asking you for environmental law capabilities, a merger with an environmental law firm probably makes sense; it would further your strategic objective of being the go-to firm for the Chilean mining industry. If you’re a Mexican firm that realizes you can’t stay afloat much longer in your present form because your clients have grown and require a larger and more multidisciplinary team, with international capabilities, then an alliance with a global player might make sense for you.
What are some bad reasons to seek a merger or alliance?