We are asked regularly at Symphony Legal for advice on succession and exit for
solicitors and law firms throughout the country. Our MD, Andrew Roberts shares his
thoughts below:There are 8000 firms in England & Wales of between 1-4 Partners and a large majority
of these will have Partners who are in the last few years of their careers. For these
Partners to retire there are only 6 possible solutions. These are that you already have
tomorrow’s partners in place, you need to find them and attract them, you are acquired,
you bring in professional management, you close the firm or you just keep on going
hoping things will work out. It might be helpful for us to take each of these in turn and
look a little deeper.
1. You already have succession in place.
Well done, you are obviously running an attractive firm and your younger colleagues can
see that it is strong and sustainable and so they are happy to invest. We advise all
clients in their 50s to start seriously concentrating on this process because it takes time
to develop your people. We find that the next generation find taking on ownership easier
if the firm incorporates so that they can acquire shares in a business rather than equity
in a partnership. This might seem a minor distinction but it does make the route to new
ownership and therefore your exit, smoother.
2. You need to find your successors.
You no doubt have good lawyers in the firm but no one who has the desire or
commercial nous to take over. This is quite common and maybe not surprising
considering the regulatory and financial environment that firms operate in now. However,
other owners are out there and so you need to find them and then make the firm as
attractive as possible to them.
To find them we would suggest networking first – ask your accountant and bank if they
have heard good things about young locals. Talk to your other contacts and clients but if
these do not yield results, you need to retain a professional head-hunter who has the
research capability to uncover the right person. Once you have a target, you then need
to make the firm as attractive as possible. Obviously if there are any issues you need to
remedy these first, or have a plan in place to do so. Then put together a sales
prospectus containing all relevant information – fees and margin over 3 years, client
types, staff demographics, liabilities, property details. Make it easy for them to see that
this is a good long term business opportunity for them and always, always, be positive.
3. You are acquired.
People always talk about law firm mergers, but in reality they are always acquisitions.
Again, you need to tidy the firm up and prepare a prospectus to get your thoughts
organised. Then make discreet enquiries as to which firms might be interested in
acquisition. These might be via your bank or accountant, or via a broker who will ensure
that your plans are kept secret and who will help you cover all the potential options.
Acquisition is an excellent way of solving the problem, there is no disgrace in losing the
name or independence if by doing so you can exit whilst guaranteeing the continued
wellbeing of clients and staff. Also, you don’t need to wait until retirement for this to work,
again, doing it in your 50s gives you 5 to 10 years to enjoy the benefits of the merged
firm.
4. Professional management.
Bring in a non-lawyer to run the firm. For this to work it is far better to incorporate
because you can then hold shares in the business and maybe sit on the board whilst
having a CEO run the firm day to day. That CEO should also probably have shares. This
solves the ownership issue and also allows you a kind of exit (whilst maintaining an
income), but you are very reliant on finding and keeping a good CEO and it is probably
not a sound long term solution.
5. You close.
Only firms with large liabilities or major issues should need to consider this as an option
because there is always an inherent value in a firm. PII contagion is the largest issue
and firms are rightly wary of becoming successor practice to firms with a poor history.
However, if you decide to close, your current PII provider must offer run-off terms and
you should then follow Chapter 10 of the SRA code and effect an orderly closure. This is
a rather inelegant end to a career but at least it allows an exit and would usually happen
upon expiry of the office lease.
6. Do nothing
The final option, do nothing and hope something turns up. This last option is very
common but is not sustainable in the long term however attractive it might seem
immediately. As I have said earlier, every firm has a latent value so long as it is not
burdened by PII or other toxic liabilities and the sooner you start the process the better.
In our experience the best way to exit is to address the issue early and grow your own
succession. If this is not possible (or doesn’t work out) then being acquired is likely to be
the easiest option for you and the best option for your clients and staff. If we can help
with any of the above please get in touch, [email protected] or 0333
320 9979.
To hear more from our team alongside other legal industry experts, why not join us in
London on May 24th for our Spring Conference (The Change Challenge) in conjunction
with NatWest. For more details or to book please click here
Louise Gash
Operations Director
Symphony Legal Limited
Office: 0333 320 9979 / Mobile: 07792 420347 / Web: www.symphonylegal.com The
Hive, 6 Beaufighter Road, Weston-super-Mare, North Somerset BS24 8EE Company
reg: 09870977