Post Merger Economics

I have written numerous articles on Mergers and Affiliations. As I’ve said before, and will probably say again, many mergers happen for the wrong reasons. One of those is growth purely for the sake of growth. While revenues may rise as a result, that doesn’t mean that profitability will in fact improve. In fact, the more complex the organization, particularly when it comes to additional offices, the less the profits per partner, in general.

Firms assume too often that there will be a realization of economies of scale by combining operations. Too often those savings fail to materialize. And then the result is disappointed partners, and cutbacks.

A recent article in The March/April 2006 issue of Law Firm Inc. highlighted statistics from the most recent Altman Weil survey. Altman Weil principal Thomas Clay points out that only time will tell whether some of the mergers were sound business moves. As an example cited in the article, Holland & Knight has “retooled twice since engaging in explosive growth since the mid-90’s. Most recently, despite record revenue in 2005, the firm announced the closing and consolidation of seven offices. Partners in Pillsbury Winthrop Shaw Pittman, created by a 2005 merger, are similarly making course corrections. After reporting a 20 percent decline in profits per partner, some support staff were offered a voluntary buyout, and subsequently layoffs were considered.”

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