THE MAGAZINE      October 2002
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Is This Merger Worth Pursuing?

Calculated Moves

Ward Bower

Maybe it’s your golden opportunity. Maybe it’s your blackest nightmare. Minimize the risk of expending valuable resources investigating a dead-end proposition. Analyze your theory.


Ever more law firms are being approached as merger candidates or acquisition targets. Exploring every opportunity that knocks at your firm’s door, however, can mean significant cost in terms of time, energy and out-of-pocket expenses. You don’t want to foolishly decline an overture that could turn out to be a once-in-a-lifetime chance. On the other hand, you don’t want to enter into a quagmire or outright disaster. How can you decide whether to seriously consider a merger approach?

Calculate the Competitive Advantage

A merger is not a goal unto itself. It is a strategy to achieve some objective that results in or amplifies a competitive advantage. Generally, it is about obtaining more or better business, attracting better lawyers, gaining access to new markets, or becoming more efficient and well-known by becoming part of something bigger. Thus, the strategic goal of successful law firm mergers is to create value through access to new clients, services, talent or geographic markets that enhance revenues and profits. If the firm resulting from the merger does not increase everyone’s profits (and partner incomes), it is not worth pursuing.

The easiest and quickest test of a proposed firm merger is to evaluate the business case supporting the merger. Does it stand up against the theory that everyone would make more money post-merger than they would as partners in the independent firms? Test the theory with this formula:

Sources of New Revenues

Plus Economies of scale (cost savings)
Minus Probable lost revenues
Minus Increased costs

Based on this formula, here are the factors you will need to evaluate.

Sources of new revenues

  • Services Firm A will provide to Firm B clients
  • Services Firm B will provide to Firm A clients
  • Revenues resulting from new clients attracted by the merger
  • Revenues resulting from potential new referral sources

PLUS: Economies of scale

  • Reduced costs resulting from elimination of redundant staff and facilities
  • Reduced costs resulting from consolidation of systems, processes and functions
  • Reduced costs resulting from bulk purchase savings and renegotiated vendor packages

MINUS: Potential lost revenues

  • Clients lost as a result of conflicts
  • Lawyers lost as a result of the merger
  • Referral sources lost as a result of the merger

MINUS: Incremental costs

  • Transaction costs, including travel expenses and the value of lost time
  • Integration costs, including consultants, management time, travel and communications

Prospectively quantifying the effects of these factors will require some educated guessing, even speculation. It will also require a multiyear approach, because transaction and integration costs in the first year or two of a merger often render any short-term benefit nil.

In the final analysis. The figure that results from this simple calculation will either provide justification for moving forward with merger discussions or for abandoning the merger altogether. Absent such an analysis, it is difficult to reasonably assure members of both firms that, in fact, two plus two will equal five or more down the road. And there is no reason to consider a proposed merger unless that is likely.

Ward Bower ( is a principal of Altman Weil, Inc., in Newtown Square, PA. He consults to law firms on strategic issues, including mergers and acquisitions.