Merging during a pandemic

Going through a merger can be a complex operation at the best of times, so managing the merger between Ellisons Solicitors and Blocks during the height of the pandemic certainly threw up some challenges. John Turner, COO at Ellisons Solicitors, looks at how Covid-19 impacted the merger, and the future of the industry

At times, merging during the pandemic felt impossible. Our contract specified that we had to complete by 1 April, near the beginning of the first lockdown, which meant we were navigating our workforce learning to operate remotely, two teams becoming one, dealing with supply chain delays and managing the rebranding of a building no one was allowed in – all while continuing excellent customer service to two client bases.

Ensuring business-as-usual for clients was our priority and, although our colleagues quickly became dab hands at conducting business meetings remotely, technology migration proved our biggest issue. Lockdown caused delays to our supply chain which meant we couldn’t migrate everyone onto the same practice management solution until September, six months after we had merged. This caused a few glitches, but ensuring everyone was set up on Ellisons’ email addresses allowed us to feel joined up.

Communication and maintaining progress were key. We continued our regular project meetings to make sure any issues were ironed out quickly and that we were constantly communicating with our colleagues. Some people were keen to get back into the office, so we made sure they were safe to do so by putting in place extensive safety measures and procedures. The rebranding of the office was another area held up due to the crisis as we were unable to update the branding on the building from the first day of merger, like we usually would. All in all, it was a prolonged process, but our teams made it happen.

Looking to the future

Throughout this period, and as we continue to operate through the pandemic, we’ve found it was very important to listen to colleagues about how they want to work in the future. While some people are desperate after many months of working from home to return to the office, some people aren’t as comfortable. Working with them over the next few months is essential for ensuring the next phase goes smoothly when lockdown ends. On the whole, I think it’s highly unlikely people will return to the office in the same way. It’ll be interesting to see how firms that have recently invested in additional office space find ways to use it.

We’ll be keeping a close eye on the industry in the 2021.  After such a tough year I expect we’ll see an increase in SME consolidations as 2021 forces smaller businesses to reconsider their business model. It’s a difficult prospect to fathom as the hit on smaller law firms will have an overall impact on the future of the industry.

It’s been a hard year for businesses of all sizes – and, although it was difficult, we proved that merging in a pandemic is possible. Every law firm’s goal should be to give excellent client service and I believe there are exciting opportunities on the horizon among the difficult times.

Demergers during a pandemic: key considerations for law firm spinoffs

Zulon Begum and Wonu Sanda at CM Murray on what law firms need to know when going through a demerger.

During these economically turbulent and uncertain times, many law firms will be seeking to insulate themselves from short-term financial difficulties and position themselves for longer-term growth. For some firms, which have expanded and diversified into varying practice areas in more buoyant years, this may involve scaling back and divesting non-core practices through a demerger. Such appears to have been the case for global law firm Clyde & Co, which recently announced its demerger from Simpson & Marwick (a Scottish residential property practice it merged with in 2015). It’s likely to be a growing trend and, in this article, we discuss some key reasons for and implications of a demerger.

Why a demerger?

Demergers involve part of a business breaking away from a larger firm (divesting firm) to form a new firm (demerged firm), usually by way of a transfer of business, assets and people. As with Clyde & Co – which is predominantly focused on the core specialisms of dispute resolution, professional liability, and insurance – a niche practice area like residential property may simply no longer align with its overall practice and strategy going forward. Often, divesting firms see demergers as an opportunity to strategically re-align their focus on their core business competencies and streamline expenditure and operations. For the demerged firm, financial and management independence and the ability to potentially unlock untapped value for partners and employees in that part of the business can be a compelling driver.

The implications and aftermath of a demerger

There are many issues for law firms to consider in a demerger. As a starting point, firms will need to factor the constitutional provisions that are relevant to the demerger into the timetable and commercial terms of the deal – including the requisite partner approval for the transaction and notice requirements, payment of outstanding capital and current account balances, restrictive covenants and other provisions affecting those partners who are transferring to the demerged firm.

Both firms will want to ensure that a fair and balanced approach is taken to determining and valuing the assets and liabilities transferred, such as the work in progress and book debts of the transferred business and agreeing how these are dealt with going forward. Additionally, the divesting firm will be keen to ensure that professional indemnity and successor practice liabilities are transferred to the demerged firm.

It’s likely that the demerged firm will need to be authorised by the Solicitors Regulation Authority prior to completion of the demerger – this can be a lengthy process and should be initiated at an early stage to avoid delays. The demerged firm will also need to put in place the necessary infrastructure to ensure that it can carry on business as usual from day one; this will include matters such as office space, appropriate professional indemnity insurance, employee benefit schemes and so on.

A demerger may also trigger the application of Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), such that the employees and possibly LLP members (if the divesting firm is an LLP) may transfer to the demerged firm with preserved employment rights. If TUPE applies, then obligations to inform and consult and specific timescales will apply and will require careful forward planning.

It would be wise for the demerged firm to consider with, specialist advice, how any partner or senior employee’s restrictive covenants will be treated and potentially varied (including on any issues with TUPE connected variations being rendered void) to ensure that the restrictions remain relevant and enforceable by the demerged firm.

We expect to see more firms choosing to demerge to streamline their operations in the coming months and it’ll be important that they ensure the right advice and steps are taken so that the process is smooth and the demerger is ultimately successful for both parties.