A clear message from last month’s LB100 report was that the merger of two firms that have ‘simply cuddled together for bodily warmth to escape the chill of the recession’ could be a defective strategy. However, it seems that the appetite for mergers between struggling firms in the mid-market shows no signs of slowing down.
It has even got to the stage where some firms are releasing press statements to confirm that they are in talks and will not discuss the mergers until a decision has been made. A string of firms have done this since Dundas & Wilson’s ill-fated dalliance with Bircham Dyson Bell a year ago.
The last month saw Field Fisher Waterhouse, fresh from failed talks with LG in the summer, confirming that it is exploring merger options ‘with a number of firms’ as ‘potentially one way of achieving our ambitious growth plans’. Dickinson Dees made a formal press statement in September confirming that it is in the middle of merger discussions with south coast-based Bond Pearce to create a top-30 UK firm covering most of the UK.
While many tie-ups, such as DAC Beachcroft last year, make sound strategic sense and allow the combined entity to be more than the sum of its parts, others are rushing into merger talks that dissolve in a matter of weeks. We’ve had almost as many merger talks collapse in the past year as we have had actual mergers taking place: Dundas/Bircham; LG/FFW and Cobbetts/DWF being the standout examples.
A merger seems to be the only way out for some mid-market firms.
Firms are usually forced into making statements about merger discussions as a PR tactic intended to negate the impact of any loose-lipped lawyers blabbing secrets to the press. However, there is also a benefit to making these statements. Refusing to comment ‘until discussions have reached an appropriate stage’ will hopefully avoid any mergers being scuppered by management failing to answer testing questions about the merits of the proposed combination ahead of a vote.
While a merger seems to be the only way out for some mid-market firms and they feel under pressure to act now to avoid being left behind, they really should be doing their due diligence and assessing whether a combination would really work long before there’s any rumour of negotiations. Any union can fail when parties cannot reach consensus on crucial issues in the latter stages of discussions, but when two firms that have been publicly courting each other clearly do not fit well together, both firms end up looking desperate when the inevitable happens and the talks end.
The recent wave of mid-market consolidation traces back to Speechly Bircham’s tie-up with Campbell Hooper in 2009. But despite frequent talk of ‘compelling synergies’ and ‘achieving critical mass’, too often merger discussions sound like a couple talking about having a baby just to keep their marriage alive.