Many law firms are considering their future right now, either with succession and retirement in mind or looking for investment and support in unlocking potential for growth. This may lead towards potential disposals of firms, which can be a long and emotional process.
As leading advisers in law firm sales, we’ve put together five areas for consideration which, in our experience, will help generate the best result and avoid issues along the way.
1. When should I start the process?
As soon as possible! Many buyers will also want the current owners to remain in the business in some capacity, even if part-time, for at least a year – leaving it too close to your retirement date will make a disposal more difficult, particularly for a smaller practice.
Start the process from a position of strength when you have just confirmed your PII cover for the whole of the next year. If you leave it to when a PII renewal date is approaching, you may end up committing to another full year of cost for a fraction of the year’s cover, as cost may not be able to be refunded or transferred to a successor practice policy. Even worse, it may mean that cover is not obtained and we are then into a distress sale situation, which nobody wants.
2. Bring in your advisers at an early stage
By appointing the right advisers, they will know the market inside out and how to get the best results for you. It’s best to bring in your advisers before approaching any potential acquirers but ensure you appoint specialists who are experienced in legal sector transactions, understand how law firms are run and who know potential acquirers to approach.
Agree your objectives and parameters. Your advisers will know the market values, multiples, adjustments, usual treatments etc. They also know what information should be shared and when.
Non-legal specialists, on the other hand, will be less likely to know how to approach legal sector transactions, less likely to know the right acquirers and may miss key matters that are specific to law firms.
3. Try not to do too much yourself
When it comes to priorities, focus on your client as there’s a danger of becoming too emotionally attached to details that may not impact the bigger picture.
It’s best not to approach potential acquirers before your advisers are in place as they will know the right people to approach. You will also want to avoid having word spread around the market as somebody that wants to sell before you’re ready and will mean nothing is said to a potential acquirer that binds your advisers once they are in place. Waiting to engage with acquirers, means your advisers will be able to engineer a better result for you.
It’s also worth bearing in mind that you might want to join the firm that acquires your business – even if just during handover time – so leaving any difficult conversations to your advisers can help maintain good relationships.
4. How many potential acquirers should be approached?
Your advisers will be able to determine the right number of potential acquirers and can approach them on a no-names basis, and exchange NDAs ahead of providing information.
There are many occasions where a lot of time and cost has been invested in speaking with only one or two potential acquirers only for them to change strategic direction or pull out for some other reason, meaning the process has to be started again. This adds costs and delays the entire process.
Be wary of non-specialist corporate finance advisers who may adopt the approach of circulating blind flyers around their networks to as many people as possible, then obtain NDAs and then provide Information Memorandums (IM). In our experience, this can often alert the market that your firm is for sale, which will adversely impact staff, clients and value. It could also mean firms that do not have a cultural and operational match to yours may respond, increasing time wasters and also the potential for merging with an incompatible firm.
5. Don’t waste time and cost preparing expensive and flashy Information Memorandums
Savvy buyers know what they are looking for and value the base information and discussions more highly than expensive documents that are designed to paint the selling firm in its best light.
Non-specialist corporate finance advisers may even want to you pay them for an IM to circulate at an early stage – in our experience, it is wasted time and cost in the legal sector.
Selling your business is one of the biggest decisions you will ever make, and having the right team working alongside you to ensure any merger or acquisition matches your objectives and goals is essential. Armstrong Watson works in partnership with The Law Society and we have a team of specialist advisers working on legal sector transactions. We are confident to state that we are most likely involved in more law firm mergers than any other accountancy firm in the UK. We know how law firms work and what you need to do in order to obtain the best results.
Contact Andy Poole, Legal Sector Partner, for an initial confidential conversation about your plans and the best steps to take.
