How to Attract and Acquire a Practice Group

The acquisition of existing practice groups (and their attendant 'rain') makes sense for a number of reasons, including:

• Efficiency. The process of identifying, attracting and winning, then vetting and integrating a single partner necessarily consumes a material amount of management and partner time. Why buy retail ' the proverbial 'onesies and twosies' ' when you can get them wholesale? An entire practice group with an established client base can be acquired quickly and efficiently.
• Cost. A practice group is far more likely to transition the bulk of its clients to the new firm. In addition to the usual factors that prompt a client to follow 'their' lawyer, the group's prior firm generally is left with little or no bench strength to compete with as they try to hold onto those clients. Clients and the acquiring firm both benefit since less time is written off for associates struggling to get up to speed mastering aspects of a matter that the client has already been charged for once. The retail/wholesale analogy can also apply to a limited extent with respect to recruiter fees for a group, if firms can negotiate a modest step-down from the customary fee percentage for service partners, counsel and associates who follow the lead partners.
• Integration/Comfort. Because the group is moving as an integrated unit where everyone knows the others' capabilities and preferences, and there is familiarity with ongoing matters and clients, continuity of work and clients (as well as comfort among the new group) are enhanced.
• Cohesiveness of an Established Group. When firms attempt to assemble a group by putting to-gether separate individual rainmakers with their own practices, they run a higher risk of conflicts with clients, individual goals, personality, work ethic and style. Who will be king, who will be prince and who will be serf? With a practice group ' assuming they are relatively cohesive and have already established a pecking order from the lead rainmakers on down ' those conflicts are reduced.
• The Big Bang Effect. When Latham acquired the core litigation practices of Mudge Rose, or when Orrick acquired virtually the entire litigation group of Donovan Leisure, their New York offices went from being successful to powerhouse market leaders. Because they were successful acquisitions and generated positive buzz, they quickly became 'this year's black' ' the firm that every other lateral partner or group had at the top of their list as a possible new home. And while arguably size should not matter, an office that is approaching (or has attained) critical mass has far more gravitational attraction to laterals. As such, the benefits of acquiring a group are even greater to the 'newly arrived' branch office of an out-of-town firm, or one that hopes to take its growth to the next level. For every rainmaker who embraces the 'you can get in on the ground floor and help build an office' argument, there are far more with friends whose clients could not be properly serviced, retained or attracted after they joined a 15-lawyer outpost.

Enhancing the Odds of Acquiring a Group

Initial Stage

• Educate. Invest the time to educate a handful of legal recruiters with whom you are comfortable and that will represent your firm most effectively to potential candidates. This is important for all lateral partners or groups because we, as recruiters, need to be able to differentiate your firm from others to effectively 'sell' it to key lawyers in the targeted practice areas. It can have even greater import for practice groups, where there can be multiple decision-makers (or influencers) who feel the stakes are even higher than if they had simply moved by themselves. Think of this as 'seeding the clouds' ' a necessary investment of time and effort if we are to help bring you the torrents of rain that come with those rainmakers.
• Strategic choices. Decide on the specific skill sets and professional and academic qualifications the firm believes are strategically important. Have in mind a list of firms more likely to have partners who fit those specifications but who might also be willing to listen to overtures from your firm.
• Goals of acquisition. Determine in advance: potential synergies of the targeted practice area(s); attraction of new clients; development of new business from existing clients; and expanding those practice areas in other offices. Also consider in advance how a group of new attorneys can be cross-sold to existing firm clients, and how their clients might be cross-sold services (or offices) of your firm that their current firm cannot offer. The more persuasive the business case, the more attractive you will be to the rainmakers being asked to join you.

Interview Process

Select the right 'front person' to make the best initial impression. (Depending on the group and the circumstances, this may or may not also be the person who oversees the process generally and keeps it moving forward.) In rare cases, the firm chair may wish to be a part of the initial meeting in order to underscore the strategic importance. The team should include members of the management team that are well versed in all the financial, cultural and historical aspects of the firm. Give the team authority and responsibility to guide the process and make them accountable.

The firm representatives should be dynamic, and are expected to convey the necessary enthusiasm to 'sell' the firm. They must be prepared to answer questions about: 1) firm culture, including how equity partners are compensated (the ultimate reflection of culture, some would argue) and how and when attorneys are made non-equity and equity partners; 2) capital contribution requirements; 3) long-term liabilities, eg, pension plan, loans, lines of credit and leases; 4) 5- and 10-year plans for the firm's future; 5) history of other successful partner and/or group acquisitions; and 6) current and long-term growth and acquisition strategies. Make sure firm representatives express consistent (though not identical) views about the firm's intentions to avoid sending mixed signals.

Be prepared to make the business case for the acquisition (both ways), ie, 1 + 1 = 3. It is important to convey that this transaction has been well thought out, fits into the larger strategic plan of the firm, is supported by key partners in firm (and in the existing practice group, if there is one) and is viewed as a long-term investment.

Get as many members of the group (other than associates, who in most jurisdictions should not be made aware of the discussions until after the old firm has been advised of the move) involved in the interview process. The key rainmaker(s) will generally have more and higher-level meetings, but it should not be to the exclusion of everyone else. Ideally, each member of the group should buy into the decision to join your firm, thereby avoiding the problem of the 'tail wagging the dog.' Over the years, we have seen far too many instances where a junior partner persuades the group head ' and predominant rainmaker ' not to join a new firm because the junior fears change or the competition they might face within a stronger firm, has not felt sufficiently 'wooed,' or is otherwise disinclined. In an effort to please everyone, or to be democratic, some group heads have passed up the opportunity to join a far superior firm where their practice could have flourished.

Momentum, Momentum and More Momentum

Deals often die if people feel that they are being neglected, delayed or viewed as unimportant. One of our colleagues is fond of quoting the pithy M&A maxim, 'time kills all deals.' Designate at least one 'point person' to maintain open and constant dialogue. The point must have sufficient clout to ensure that partners needed for meetings with the group will make it a priority, prepare for the meetings appropriately and follow up at each stage of the process. After all ' and this point needs to be reinforced to your partners on a regular basis ' you are trying to land the equivalent of a new $10 or $15 or $20 million client. After each successful meeting, be sure to schedule the next meeting if possible, at least tentatively, or set a timeline by which the next step is to be completed, and review internally the information gained from the last meeting.

Due Diligence

Exchange client lists as soon as appropriate, and update them periodically thereafter. This can save a tremendous amount of time and effort if irreconcilable conflicts are uncovered. One group acquisition we worked on for nearly a year was derailed when it was discovered at the 11^th hour that a company acquired by one of the firm's key clients after the conflicts check was first conducted had sued a key client of the group's for hundreds of millions of dollars.

Review the hourly rates, billable hours and realization rates of each member of the group and, as importantly, be sensitive to personality compatibility. Many deals fail be-cause too much attention was dedicated to the quantitative information and not enough time to the cultural compatibility.

At the appropriate juncture, obtain responses to partner questionnaires and, to the extent permitted, attempt to diligence the nature and depth of the client relationships.

Negotiation

Just like in the Star Wars movie, where Queen Amidala posed as the servant girl, the power in a group may not always reside where you think. In some cases, we have had to deal with key rainmakers who delegate all the negotiation and nitty gritty of the deal to a lieutenant (for some reason often a tax partner) in the hope that they can focus on their own deals or cases and parachute in at the end. Don't lose sight of who is actually calling the shots and will decide whether or not the group will be joining your firm ' you must always find a way to interact with, and focus sufficient attention on, that individual, no matter how busy they may be.

Group Members and Status

Be as flexible and inclusive as possible. While some of the service partners might not be people you would have hired independently, don't be too quick to try to cut them from the herd. The memory still rankles (more than a decade later) of a firm that killed a 50-plus lawyer acquisition because a single partner in a core practice areas was deemed 'not our style' ' hair, weight, accent and demeanor ' and thus not acceptable. Predictably, the group heads were insulted that someone they considered a valued colleague and partner could be dismissed out of hand and decided that the acquiring firm was not the new home it had hoped for. If you fear that someone is incompetent or unethical, they should not be included. But those who have worked closely with someone for years may be in a better position to judge his or her long-term worth and client acceptance than those who have spent several hours together in a conference room.

Some firms still have only one tier of partner and are understandably protective of their equity. Non-equity partners joining such a firm are (equally understandably) reluctant to give up their cherished and hard-won title for something (such as a 'counsel' title) that will appear to the outside world as a demotion. These ' and the corollary 'you're an equity partner now but will be NEP when you come here' ' can be among the most difficult situations to confront. Again, flexibility ' and creativity ' can be key. We have seen these obstacles successfully overcome when the acquiring firm was only able to offer one of the group members 'counsel' or 'senior counsel,' but combined it with a substantial increase in compensation and/or sign-on bonus, assurances of realistic opportunities to become full equity partners, with reasonable benchmarks if possible, and sufficient stroking to give comfort that the individual was truly valued by their new firm. The same applies where the group is being brought in to supplement an existing firm practice. Is there a practice group co-leader title available to soften the blow and soothe the ego of the group's current lead?

Compensation and Guarantees

While we do not counsel the groups we represent to seek such an arrangement, some larger groups in recent years have negotiated a fixed pot of money for the first year or two that they could then divide amongst themselves. It's better by far to integrate immediately into the new firm's compensation system rather than cut a special deal that reinforces the group's apartness ' but having a say in who gets paid how can ease the discomfort of not yet knowing (or completely trusting?) your new partners.

Guarantees for specific partners, or even for each member of a group, are increasingly common, though not typically for the 8-year period negotiated by one particularly prolific and desirable rainmaker. In our experience, 1- and 2-year deals are more customary. As a rule, once the guarantee period expires, the members of the group slot into the firm's customary grid with everyone else.

As far as making capital contributions is concerned, as with individual lateral partners, the members of a group often will seek relief from having to make an immediate contribution of the full amount of capital required for a partner at their level. As a rule, firms will either permit them to contribute funds as they are returned by the former firm, or will arrange low-interest loans with the firm's primary banking relationship.

Post-Acquisition Integration

This is perhaps the most important, and often neglected, aspect of any group acquisition. (See, Lindsey, et al., 'Lateral Partner Satisfaction: Who Has It, How They Got It, and How To Enhance It.') The firm must promptly introduce and otherwise integrate the new attorneys and support staff into the fabric of the firm, both on a business level (by exploring cross-selling opportunities) and social level. Silos can be helpful for farmers and intercontinental missile launchers, but they can be toxic to the culture of law firms.

Conclusion

Acquisitions of groups of partners, if planned thoroughly and executed intelligently, can materially add to the long-term strength of a well-managed law firm.

If you could bring in a new group of clients generating $10 million in annual legal fees, would your partners make it a priority? How about $15 million? Or $20 million? Those were the estimated historical revenues of three different groups of rainmakers (and supporting casts) assisted by Major, Lindsey & Africa in the first half of 2006 as they transitioned to new law firms. Such acquisitions of groups led by major rainmakers reflect a sea change in how the legal profession does business, particularly with respect to growth. No longer satisfied with a model of organic growth 'up through the ranks' or the more recent sporadic additions of individual partners, more firms are turning their focus to the acquisition of entire practice groups; bringing with them seven- and eight-figure practices. (Mergers of entire firms, while far more common than a generation ago, are a topic for another article. While they provide many of the benefits of a group acquisition ' and sometimes far more ' there are fewer and fewer attractive and willing merger partners to consider.) For most law firms, growth no longer focuses simply on the number of attorneys, but rather on increasing revenue per lawyer, profits per partner, geographic footprint and diversity of practice areas.

The Advantages of Growth by Groups

In today's marketplace, firms are increasingly interested in acquiring integrated practice groups of three or more partners who have worked together for some time with the ancillary associate attorney and non-legal support. (In all but the most rare cases, the group has an established client base that generates revenues per lawyer equal to, or higher than, that of the acquiring firm.) This is a logical extension of firms' continuing desire to grow, but with a more sophisticated and conservative approach.

The acquisition of existing practice groups (and their attendant 'rain') makes sense for a number of reasons, including:

• Efficiency. The process of identifying, attracting and winning, then vetting and integrating a single partner necessarily consumes a material amount of management and partner time. Why buy retail ' the proverbial 'onesies and twosies' ' when you can get them wholesale? An entire practice group with an established client base can be acquired quickly and efficiently.
• Cost. A practice group is far more likely to transition the bulk of its clients to the new firm. In addition to the usual factors that prompt a client to follow 'their' lawyer, the group's prior firm generally is left with little or no bench strength to compete with as they try to hold onto those clients. Clients and the acquiring firm both benefit since less time is written off for associates struggling to get up to speed mastering aspects of a matter that the client has already been charged for once. The retail/wholesale analogy can also apply to a limited extent with respect to recruiter fees for a group, if firms can negotiate a modest step-down from the customary fee percentage for service partners, counsel and associates who follow the lead partners.
• Integration/Comfort. Because the group is moving as an integrated unit where everyone knows the others' capabilities and preferences, and there is familiarity with ongoing matters and clients, continuity of work and clients (as well as comfort among the new group) are enhanced.
• Cohesiveness of an Established Group. When firms attempt to assemble a group by putting to-gether separate individual rainmakers with their own practices, they run a higher risk of conflicts with clients, individual goals, personality, work ethic and style. Who will be king, who will be prince and who will be serf? With a practice group ' assuming they are relatively cohesive and have already established a pecking order from the lead rainmakers on down ' those conflicts are reduced.
• The Big Bang Effect. When Latham acquired the core litigation practices of Mudge Rose, or when Orrick acquired virtually the entire litigation group of Donovan Leisure, their New York offices went from being successful to powerhouse market leaders. Because they were successful acquisitions and generated positive buzz, they quickly became 'this year's black' ' the firm that every other lateral partner or group had at the top of their list as a possible new home. And while arguably size should not matter, an office that is approaching (or has attained) critical mass has far more gravitational attraction to laterals. As such, the benefits of acquiring a group are even greater to the 'newly arrived' branch office of an out-of-town firm, or one that hopes to take its growth to the next level. For every rainmaker who embraces the 'you can get in on the ground floor and help build an office' argument, there are far more with friends whose clients could not be properly serviced, retained or attracted after they joined a 15-lawyer outpost.

Enhancing the Odds of Acquiring a Group

Initial Stage

• Educate. Invest the time to educate a handful of legal recruiters with whom you are comfortable and that will represent your firm most effectively to potential candidates. This is important for all lateral partners or groups because we, as recruiters, need to be able to differentiate your firm from others to effectively 'sell' it to key lawyers in the targeted practice areas. It can have even greater import for practice groups, where there can be multiple decision-makers (or influencers) who feel the stakes are even higher than if they had simply moved by themselves. Think of this as 'seeding the clouds' ' a necessary investment of time and effort if we are to help bring you the torrents of rain that come with those rainmakers.
• Strategic choices. Decide on the specific skill sets and professional and academic qualifications the firm believes are strategically important. Have in mind a list of firms more likely to have partners who fit those specifications but who might also be willing to listen to overtures from your firm.
• Goals of acquisition. Determine in advance: potential synergies of the targeted practice area(s); attraction of new clients; development of new business from existing clients; and expanding those practice areas in other offices. Also consider in advance how a group of new attorneys can be cross-sold to existing firm clients, and how their clients might be cross-sold services (or offices) of your firm that their current firm cannot offer. The more persuasive the business case, the more attractive you will be to the rainmakers being asked to join you.

Interview Process

Select the right 'front person' to make the best initial impression. (Depending on the group and the circumstances, this may or may not also be the person who oversees the process generally and keeps it moving forward.) In rare cases, the firm chair may wish to be a part of the initial meeting in order to underscore the strategic importance. The team should include members of the management team that are well versed in all the financial, cultural and historical aspects of the firm. Give the team authority and responsibility to guide the process and make them accountable.

The firm representatives should be dynamic, and are expected to convey the necessary enthusiasm to 'sell' the firm. They must be prepared to answer questions about: 1) firm culture, including how equity partners are compensated (the ultimate reflection of culture, some would argue) and how and when attorneys are made non-equity and equity partners; 2) capital contribution requirements; 3) long-term liabilities, eg, pension plan, loans, lines of credit and leases; 4) 5- and 10-year plans for the firm's future; 5) history of other successful partner and/or group acquisitions; and 6) current and long-term growth and acquisition strategies. Make sure firm representatives express consistent (though not identical) views about the firm's intentions to avoid sending mixed signals.

Be prepared to make the business case for the acquisition (both ways), ie, 1 + 1 = 3. It is important to convey that this transaction has been well thought out, fits into the larger strategic plan of the firm, is supported by key partners in firm (and in the existing practice group, if there is one) and is viewed as a long-term investment.

Get as many members of the group (other than associates, who in most jurisdictions should not be made aware of the discussions until after the old firm has been advised of the move) involved in the interview process. The key rainmaker(s) will generally have more and higher-level meetings, but it should not be to the exclusion of everyone else. Ideally, each member of the group should buy into the decision to join your firm, thereby avoiding the problem of the 'tail wagging the dog.' Over the years, we have seen far too many instances where a junior partner persuades the group head ' and predominant rainmaker ' not to join a new firm because the junior fears change or the competition they might face within a stronger firm, has not felt sufficiently 'wooed,' or is otherwise disinclined. In an effort to please everyone, or to be democratic, some group heads have passed up the opportunity to join a far superior firm where their practice could have flourished.

Momentum, Momentum and More Momentum

Deals often die if people feel that they are being neglected, delayed or viewed as unimportant. One of our colleagues is fond of quoting the pithy M&A maxim, 'time kills all deals.' Designate at least one 'point person' to maintain open and constant dialogue. The point must have sufficient clout to ensure that partners needed for meetings with the group will make it a priority, prepare for the meetings appropriately and follow up at each stage of the process. After all ' and this point needs to be reinforced to your partners on a regular basis ' you are trying to land the equivalent of a new $10 or $15 or $20 million client. After each successful meeting, be sure to schedule the next meeting if possible, at least tentatively, or set a timeline by which the next step is to be completed, and review internally the information gained from the last meeting.

Due Diligence

Exchange client lists as soon as appropriate, and update them periodically thereafter. This can save a tremendous amount of time and effort if irreconcilable conflicts are uncovered. One group acquisition we worked on for nearly a year was derailed when it was discovered at the 11^th hour that a company acquired by one of the firm's key clients after the conflicts check was first conducted had sued a key client of the group's for hundreds of millions of dollars.

Review the hourly rates, billable hours and realization rates of each member of the group and, as importantly, be sensitive to personality compatibility. Many deals fail be-cause too much attention was dedicated to the quantitative information and not enough time to the cultural compatibility.

At the appropriate juncture, obtain responses to partner questionnaires and, to the extent permitted, attempt to diligence the nature and depth of the client relationships.

Negotiation

Just like in the Star Wars movie, where Queen Amidala posed as the servant girl, the power in a group may not always reside where you think. In some cases, we have had to deal with key rainmakers who delegate all the negotiation and nitty gritty of the deal to a lieutenant (for some reason often a tax partner) in the hope that they can focus on their own deals or cases and parachute in at the end. Don't lose sight of who is actually calling the shots and will decide whether or not the group will be joining your firm ' you must always find a way to interact with, and focus sufficient attention on, that individual, no matter how busy they may be.

Group Members and Status

Be as flexible and inclusive as possible. While some of the service partners might not be people you would have hired independently, don't be too quick to try to cut them from the herd. The memory still rankles (more than a decade later) of a firm that killed a 50-plus lawyer acquisition because a single partner in a core practice areas was deemed 'not our style' ' hair, weight, accent and demeanor ' and thus not acceptable. Predictably, the group heads were insulted that someone they considered a valued colleague and partner could be dismissed out of hand and decided that the acquiring firm was not the new home it had hoped for. If you fear that someone is incompetent or unethical, they should not be included. But those who have worked closely with someone for years may be in a better position to judge his or her long-term worth and client acceptance than those who have spent several hours together in a conference room.

Some firms still have only one tier of partner and are understandably protective of their equity. Non-equity partners joining such a firm are (equally understandably) reluctant to give up their cherished and hard-won title for something (such as a 'counsel' title) that will appear to the outside world as a demotion. These ' and the corollary 'you're an equity partner now but will be NEP when you come here' ' can be among the most difficult situations to confront. Again, flexibility ' and creativity ' can be key. We have seen these obstacles successfully overcome when the acquiring firm was only able to offer one of the group members 'counsel' or 'senior counsel,' but combined it with a substantial increase in compensation and/or sign-on bonus, assurances of realistic opportunities to become full equity partners, with reasonable benchmarks if possible, and sufficient stroking to give comfort that the individual was truly valued by their new firm. The same applies where the group is being brought in to supplement an existing firm practice. Is there a practice group co-leader title available to soften the blow and soothe the ego of the group's current lead?

Compensation and Guarantees

While we do not counsel the groups we represent to seek such an arrangement, some larger groups in recent years have negotiated a fixed pot of money for the first year or two that they could then divide amongst themselves. It's better by far to integrate immediately into the new firm's compensation system rather than cut a special deal that reinforces the group's apartness ' but having a say in who gets paid how can ease the discomfort of not yet knowing (or completely trusting?) your new partners.

Guarantees for specific partners, or even for each member of a group, are increasingly common, though not typically for the 8-year period negotiated by one particularly prolific and desirable rainmaker. In our experience, 1- and 2-year deals are more customary. As a rule, once the guarantee period expires, the members of the group slot into the firm's customary grid with everyone else.

As far as making capital contributions is concerned, as with individual lateral partners, the members of a group often will seek relief from having to make an immediate contribution of the full amount of capital required for a partner at their level. As a rule, firms will either permit them to contribute funds as they are returned by the former firm, or will arrange low-interest loans with the firm's primary banking relationship.

Post-Acquisition Integration

This is perhaps the most important, and often neglected, aspect of any group acquisition. (See, Lindsey, et al., 'Lateral Partner Satisfaction: Who Has It, How They Got It, and How To Enhance It.') The firm must promptly introduce and otherwise integrate the new attorneys and support staff into the fabric of the firm, both on a business level (by exploring cross-selling opportunities) and social level. Silos can be helpful for farmers and intercontinental missile launchers, but they can be toxic to the culture of law firms.

Conclusion

Acquisitions of groups of partners, if planned thoroughly and executed intelligently, can materially add to the long-term strength of a well-managed law firm.