A strong merger with another firm can bring about a lot of advantages and rewards. It’s a good way to expand your client base and market, scale your business, and learn from another firm’s processes. Directors or partners from both firms can benefit from this kind of collaboration and accelerate their growth simultaneously.

Legally, these acquisitions are seen as a larger firm acquiring a smaller one (a “downstream” or “downwards” merge as opposed to an “upstream” or “upwards” merge) but it’s often treated as a combination, a shared amount of influence and ownership. There are some exceptions, but the most common mergers are equal in nature. 

Mergers and acquisitions will also become an avenue for better succession planning, securing and future-proofing the business for when you or any other director or partner has to step down.

It isn’t always smooth sailing, unfortunately. Not every firm will mesh well with another, some pieces just won’t always line up. Other mergers and acquisitions don’t succeed because of poor implementation, conflicting opinions or stances, or even how much staff is retained or let go. 

It can be difficult to adapt to change so a partnership of this magnitude can completely transform the environment for some companies. While others may not feel too much of a shift, some businesses will definitely know that big adjustments are being made whether it comes to process or pace.

Despite this, mergers and acquisitions can help firms stay relevant and sustainable in a competitive environment with a bigger client reach and more powerful minds coming together to solve problems. 

The potential benefits of merging

Merging can promise a director or partner a lot of advantages as it can get you ahead of the game. Firms take on this massive change for good reason. Not only will it bring you a wider range of clientele, it will also give you the following:

Access to new niche markets, products, and services

When your firm merges with another, you get access to a wider market both online and geographically. New regions means new, niche audiences and better chances of converting leads. This combination also promises more products and services that you can offer as problem solvers or as something to add value to your clients’ lives.

Build critical mass of your client base quicker

Both firms already have a good number of clients that keep them afloat. By merging, the possibility of doubling your client base is pretty high. And this is done in a fraction of the time it usually takes to grow your client base.

Succession planning – future partner exits and internal role succession

Plenty of firms, while aware that their directors, partners, or senior managers may not stay on forever, still don’t have good succession planning in place. Which is why a merger can help that as it will introduce new leaders to each firm and they can take the time to learn more about both firms and step up to the plate when needed.

Talent capacity and skill capability

Developing your employees in order to cater to the change is important too and being able to have them evolve in their skills and sharpen their talents maximises productivity. By merging, you create a whole new blueprint on how they progress.

Economies of scale where costs are reduced for larger output

When you merge with another firm, you gain more staff, systems, and infrastructure without having to dole out a ton of cash to get them. It makes it easier to grow at a quicker speed and create more output.

Add value to existing clients with specialised skills

Usually you merge with a firm whose specialised skills you need. For example, an accounting firm may merge with a management consultancy firm to acquire their intellectual property and consulting skills. By doing the same with your firm, you can add value to your clients’ lives with expertise you haven’t been able to offer prior.

Reduce risk and have more support running the firm through greater management 

Risk management can be an important reason to merge especially if you are reliant on a few key people. Spreading the workload can mitigate any problems down the road when it comes to tougher economic times. Combining firms and strengths can bring about better management and stability. 

The potential problems of merging

Merging won’t always go well, of course, there are no guarantees for seamless convergences. Not only can there be conflicts in values, it can also be caused by:

Not getting the due diligence right and the fit is not there

When the other party doesn’t satisfy their end of the deal, it’s obviously not a good fit. Both have to carry out what’s expected of them for a change like this to occur.

Brand damage and loss of clients if the merger is unsuccessful

There’s always a risk that things won’t go right and if the skills that one firm needed from another fail to deliver, the merged firms may lose their clientele and ultimately suffer a hit to their brand.

Loss of valuation if economies of scale not achieved

Your firm loses instead of earns when production becomes inefficient and economies of scale don’t work out.

Staff loss through merger and possible demerger if it doesn’t work out

Staff can sometimes retire or leave if they feel the merger and the new processes aren’t compatible with them. Not only that, if the merger fails, staff may even want to leave because of the risks involved if the firm loses clients, is unable to mitigate problems, and can’t handle the demerger. 

Inheriting partner, staff, or organisational problems you are not aware of

When there are hidden inconsistencies that you’re not told of, you can inherit faulty systems and processes or toxic employees, and have to waste a lot of time and energy to either fix them or demerge.

Inefficiency through differing work practices

Sometimes there’s just no harmony between the two groups and can cause disagreements. Perspectives can clash and one firm may do things differently from the other to extreme degrees. 

Reasons why mergers fail

While mergers and acquisitions often sound like a dream come true for many firms looking to expand, the case is that plenty of them fail. There’s no guarantee for any smooth transitions and completely concordant mindsets. It’s entirely possible for mergers to fall through.

A few reasons are:

Culturally not aligned in values and purpose

Compatibility plays a huge part in mergers. A lot of the time they fail because the two cultures just don’t agree with each other. Values, mission, vision, and purpose don’t have to be completely united, but should at the very least be understood by both parties. If not, it will cause a falling out. 

Commercially partners are not aligned in strategy

Executing your business plan is integral to your success but if your business plan butts heads with the plan of the firm you’re merging with, it can spell disaster. Strategy must be aligned in order to grow or you risk losing direction.

Failure to integrate technology and change management plan

One firm is more likely to have a better grasp of certain technologies over the other but if you don’t come together and entrust that knowledge to the other firm’s management, then nothing will come of the merge. 

One party feels like they are the poor cousin and treated differently

When one party feels as if they’re being mistreated and that the other one is asking too much of them, they can feel as if they’re not equals. That difference in conduct can feel like the other party thinks they’re of a higher status and standing, which can cause friction. 

Lack of clear succession planning and clear roles and responsibilities

Mergers often happen because a firm needs a succession plan. But when one isn’t developed even after the merger, it can cause conflict as there’s no clear path for the next owner, partner, or senior manager; and no one knows who will take on the job. 

Clients feel that their service levels have changed or charge out rates are dramatically different

Acclimating to a different firm’s methods can be difficult so there are bound to be some small errors here and there when trying to adjust. But if you can’t seem to get your head around the system, clients may feel that they are no longer receiving that same service or that suddenly prices have changed for the worse, causing them to stop purchasing. 

Economies of scale not achieved and have become more inefficient due to processes not being followed

Production becomes inefficient because one party doesn’t like the other parties workflows and processes, so are reluctant to change. People revert to old ways of doing things and overall frustration breeds. 

How to choose the right firm to merge with 

Still, good mergers and acquisitions do exist and continue to succeed despite many failed ones in the past. You just have to be discerning and critical of which firm you want to affiliate with. Doing your research, networking with others, and finding information on different firms can increase your chances greatly. 

By having these specificities or carrying these out, you can heighten your chances of merging success:

Have similar charge out rates and business model

Research is a key component here as you need to find out what they charge and the foundations of their business. Learn how they operate and why they do so in that way. If you find that it’s compatible with your firm’s model, they may be a good fit.

Make sure cultural values and work ethic is consistent

If your staff has the same can-do attitude, good work ethic, and abides by the company values that mirror or are similar to yours, that’s a good sign. 

You have similar service standards and staff expectations

When it comes to your customers and clients, do you have the same standards you want to meet as the firm you’re eyeing off? Take a look at their staff too and how they operate—when are they praised and when are they steered in the right direction?

You have similar strategic goals and outcomes you are looking to achieve

When your eyes are both on the same prize, trying to get it together rather than separately will work out for both of you. 

Succession planning and future management roles are clear

Having a clear succession plan can help eliminate any suspicion that the merger was just a move to have a successor and is a way to be transparent about how people can step into more senior roles. 

You have a clear technology and investment plan

When your plans for technology and investment are laid out, you’ll know what you need from another firm and can better identify which one can fulfill those plans for you (and, of course, what you can do for them in return). 

Don’t rush the deal. Get to know the firm over time

There’s no need to hurry when it comes to a merger, do your research extensively and get to know the firm, its owners and partners, and all the people involved. While you may make your intentions clear from the beginning, be patient and learn everything you can before committing.

Merging professional practices can be daunting because of how many have failed in the past. But it doesn’t have to be. While there isn’t a picture-perfect merger that’s ever occurred, many firms have looked past their differences and made compromises in order to succeed far more than expected. 
If you want to learn more about how to merge successfully, get in touch with us.