Pushing the button on a lateral or merger can be one of the most difficult decisions a firm can make. We've all heard "bad marriage" horror stories and no one wants to be the next one. On the other hand, a lateral or merger could be the best thing possible for the future of the firm. Nothing is more effective in helping a firm make that decision with confidence, either way, than a comprehensive and probing financial due diligence.
The following explores the due diligence activities a financial professional will perform in order to arm a firm with data that is crucial to making this pivotal decision.
Financial Results of the Target Firm
There are many reasons why a firm may be interested in joining you. Some are good: retiring leadership, blending of like practices, adding strength to strength, geographic expansion. Other reasons may be less attractive: financial disorder, debt, dipping revenue. To get a comprehensive grasps of the candidate's financial condition, your financial professional will review the following:
The People of the Firm
Firms don't exist just on paper. They are comprised of living, breathing people. Who are they? Are you looking at go-getters, superior technicians, or young people on the rise? Or, do they have salaries out of step with the times, partners ready for retirement, or considerable redundancies with your current office personnel? Your due diligence should delve into the following areas as well:
The target firm will undoubtedly have some contractual obligations, some of which will be no problem to assume. Others may have terms and conditions that you find unfavorable. These should be brought to light and weighed as part of your considerations. Your due diligence should work to see that there are no surprises in looking at:
Malpractice litigations and any legal actions against the target firm can be deal breakers. If you are going to be taking on these responsibilities, it is vital that you are aware of them and understand if they have merit. If the legal action might be lost, are you prepared to absorb the financial consequences and any damage to your reputation that may ensue?
Ideally, your target firm has a clean slate when it comes to federal and state taxation. If not, you had better know the issues before they become your problems. If that firm operates in states where you currently have no presence, your due diligence should also factor in any tax laws that may have an impact. Here are some key tax areas to be considered:
You will want to know what types of coverage the candidate has and when the policies are up for renewal. Is the candidate over-insured or underinsured? What will it take to blend your policies? Your due diligence professional will look at the following:
Technology and Systems
More than ever, law firm technology and systems are a major expense. More than likely, you will have to deal with integration issues when you attempt to blend the two systems. As you look into the transition of the candidate's website, consider if any of the technology being used may be valuable on your website. Look into the disaster recovery and backup plans to see if they are sufficient and have aspects you can apply to your own plans. Here are some of the areas to be analyzed:
While the scope of a financial due diligence may seem overwhelming, it can be accomplished with proper planning and a methodical approach. The value of the results is too high to risk short-cuts and what you learn can spell the difference between a profitable success and a costly failure.
Questions? Contact John Fitzgerald at 212.331.7411 | firstname.lastname@example.org