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Oil and Water- the perils of mergers

By Laurence Vogel

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On the face of it, two firms merging should give the partners from both firms a chance to reduce fixed costs: cram everyone into one office, savings on IT costs and etc. And of course neither firm will want to shed staff? The aim will be to grow the top line and maximise profits.

So why do so few mergers work?

The staff of these oil and water arrangements will answer this in a trice. It’s all a matter of control. Who calls the shots post merger? The one issue that is never directly confronted, or rarely, is leadership. Who is going to be the captain of the ship?

Bolting together disparate cultures is like disregarding the Chinese proverb “Tie two birds together and neither can fly”.

If both practices are suffering, falling revenues, difficulty in retaining staff, a bunch of clients that should be charged at least double the rates they are paying, better send for Lord Sugar...

Ideally, merger should be seen as ways to enhance success not solve failure. Given the right circumstances the mix does not always need to result in separation.

What about this for a check list if you have the merger itch:

1. Carefully examine your own business model and make sure you understand your motivation in seeking a merger.

2. Be honest with your suitors. Being flexible with the truth is no way to start a new business together.

3. Take a rigorous look at the working practices of both firms and figure out how a merger can improve them.

4. Take a careful look at the clients of both firms. Does the client mix complement each other?

5. Do both practices serve the same lateral markets; are there opportunities to pool knowledge and experience to capitalise on this?

6. Don’t forget the staff. Lobby them for their opinion. Ask key staff in both firms to swap with opposite numbers and get everyone together to share experiences.

Once the contracts are drawn up, the clients informed, and staff reconciled to their fates, it is too late. Too late to realise that you are in practice with a bully, that the staff have totally oversold their skills, and that most of the clients should be sacked.

Perhaps the key item to avoid is merging because you feel you have to. Treat the exercise as if you were advising your best client on a merger. Attack due diligence with gusto and proceed because you are attracted to the proposition, not because you feel you can’t survive without it.

Published September 2015