5 things you must do when selling or merging your legal practice
"Looking to sell or merge your legal practice?" asks Rohan Harris.
Don’t let those years of hard work go to waste. Get maximum return on your investment by getting your practice ready for sale or merger.
1. Have your elevator speech prepared
While you must keep your plans low key, there will still be people you need to tell. Can you convince your partners and financiers in 20 seconds or less that a sale or merger is the right thing to do? You need to have compelling answers at the ready because you are about to invest significant time, money and effort in this process.
Those around you need to be convinced that this investment is worthwhile, particularly as the sale or merger may take you away from your fee-earning activities.
You need to be a strong and trustworthy leader of this process.
2. Think outside the square
When considering who you are going to market your practice to, don’t go too narrow. It may be that your merger partner or acquirer wants an established office in a strategic location that they don’t currently service, or you may be able to offer a desirable client panel appointment that they don’t have. A potential buyer or merger partner might operate primarily in another industry, but be looking to diversify.
Don’t rule out buyers or merger partners who offer different services to your practice. Revenue might not be the only attraction of your practice. Your key client relationships, intellectual property and high-performing employees may also add value in the eyes of prospective buyers or merger partners. Do your research and think laterally.
3. Freshen things up
There are many small things you can do to make your practice more attractive. Tidy up your practice premises for potential buyers or merger partners to walk through. A good spruce up before you put it on the market will improve your sale or merger options.
Make sure your financials are also in order. Collect or write off debts and resolve outstanding disputes and legal claims. Check that your practice registrations are current, and that all financial, customer and employee records are in order. Pull back on any unnecessary expenditure.
4. Keep it under wraps
Confidentiality is crucial both in your dealings with interested parties, but also within your practice. Have some lines prepared to use if you get unexpected questions about a proposed sale or merger. These questions could come at any time, so be prepared.
It can be wise to use a third party, like a practice broker, to handle inquiries and pre-screen potential buyers. Only provide more specific information about your practice to parties who have signed a non-disclosure agreement and have undergone a pre-qualification process. You should keep the most sensitive information under wraps for as long as possible, and only disclose it when terms of sale or merger have been agreed upon.
Within your practice, minimise the number of people who know about the deal by using a private email address for communications with your advisors. A good rule of thumb for personnel in your organisation is to operate on a strict ‘need to know’ basis. Leaks within your organisation can be very destabilising for employees and can prompt them to leave. They can also cause uncertainty among your clients.
5. Seal the deal
Don’t rely on a handshake, memorandum of understanding or heads of agreement. If things go wrong, failure to have a legally enforceable contract can be disastrous. Don’t forget to include default and termination procedures in the contract. Avoid ‘agreements to agree’ where further negotiation can be used by buyers or merger partners who may change their mind and decide not to proceed.
In short, it is well worth engaging an experienced lawyer to negotiate and document your deal. Your lawyer should also assist you to devise a detailed list of tasks to complete, following the signing but before the sale or merger is complete.
Rohan Harris is a professional services and business lawyer and principal at Russell Kennedy Lawyers.