I was talking with a top partnership lawyer at a recent meeting of the Association of Partnership Practitioners. He indicated that he was expecting a “flood of mergers in 2009.”
He wasn’t just referring to the accountancy sector but he didn’t see why that would be any different. He’s been specialising in the professional services sector for even longer than I did when I was in practice. And I’ve known his predictions to be right before, so I tend to think that he knows what he’s talking about.
Why should there be lots of merger activity in 2009? Well there are likely to be two additional factors, over and above the usual drivers:
- Some firms will lose more than their fair share of clients, or will suffer significant bad debts such that it’s ‘merge or die’; and
- Some firms will see the opportunity to expand through the acquisition (sorry, merger) with a smaller weaker practice.
If sufficient due diligence is undertaken and such a merger still makes sense it could be beneficial all round.
However history is littered with examples of mergers between two weak firms that only succeeded in creating a bigger weak firm. This then limps along for a while before it is rescued by a takeover by a much bigger firm. This only happens if the client base is sufficiently attractive. If it isn’t then the weak big firm simply splits up again and all of the time and effort devoted to the merger is wasted.
The problem will come, as it has done so many times in the past, if the newly merged firm does not institute MAJOR changes. These need to be agreed as part of the merger plan and will invariably necessitate an external facilitator. This is not something I would attempt to do but I’d be happy to recommend suitable specialists if asked.