PARTNER DEFECTIONS PROMPT MERGER STRATEGY
A large, prestigious intellectual property boutique firm had historically suffered from below average profitability, but the situation became dire after several groups of partners departed to join large general practice firms in the area. It appeared that the firm would be forced to close down its operations within a 30-day period unless an acquisition could be arranged in a very short time frame. This would result in the firm losing over ten million dollars of inventory to the landlord for breaching its lease obligations and the loss of all partner capital. In addition to low profitability, the firm had difficulty collecting receivables, and tracking productivity of timekeepers because of the substantial volume of fixed fee work performed. All of the firm’s lawyers were being hounded by headhunters interested in moving them to large, general practice firms, with many partners receiving 10 calls per day.
The situation looked bleak for this law firm. Facing a crisis, the firm’s newly elected Executive Committee contacted Altman Weil to request assistance.
Altman Weil first addressed the issue of firm restructuring, helping to identify excess clerical staff as well as operating expenses that could be reduced. This resulted in more than 20 support staff positions being eliminated, a dramatic reduction in the facilities management contract and other expense reductions that collectively would produce annual cost savings in excess of $1.5 million dollars. The Executive Committee approved and implemented these expense reductions.
Partner Compensation was also a critical issue. Partners had been earning compensation that was dramatically below market levels for comparable lawyers because of the firm’s depressed profitability. We objectively evaluated each partner’s performance to ascertain the approximate market rate of compensation that was appropriate for the individual in order to retain as many profitable partners as possible.
Finally, we worked with the firm to develop a merger strategy. We helped prepare pro forma financial projections reflecting the impact of the restructuring plan and the future profitability of the remaining lawyers and staff, which allowed prospective acquirers to understand how the firm’s future profits would contrast with its historic pattern of losses. The firm was acquired by an AmLaw 200 law firm at the end of that calendar month.
Altman Weil consultants helped this desperate and beleaguered law firm survive an imminent crisis and be acquired by a large, financially stable firm where the partners were paid market rates of compensation, and were able to successfully retain ownership of several million dollars of partner capital.