Is Your Practice for Sale? Decide it’s Worth Well.

This article was first published in Lex Witness March 2016 issue.

It’s the end of a financial year, and you may be reevaluating the forthcoming year and your growth strategies. It is possible that you may wish to dabble with the idea of getting acquired or bringing in an Equity Partner for various reasons, such as:

  • Raising capital
  • Adding new practice areas, and expanding on the revenue streams
  • Meeting a requirement where the firm is strained for resources beyond money like, human capital, advanced ERP systems and a stable ecosystem
  • Making the firm a financially viable business unit

While the intent of selling off your firm or a stake of it might pop in at any given moment of time, it is a must do as far as the planning skeletal is concerned. Whether at the inception stage of the firm or the later stages – there are certain ground rules to be followed.

Things to Plan

You need to make your firm an attractive for investors to buy in to. The Founding Partner(s) should think about creating a long term sustainable value, for a firm to be perceived as a viable and even a profitable investment option. Hence, before you ask others to invest in your firm, it is important for you to invest in creating a brand value and establishing a market identity which is exclusive of the founder’s value and reputation in the industry. These investments may include:

Branding and positioning initiatives to establish a “brand” identity for the firm. Hire a branding strategist, and methodically work towards identifying your specialty areas and start building a niche for yourself. The more your firm’s reputation grows for its work, the higher value you can demand as an investment from interested parties

It is important to create a strong referral network, whether its satisfied clientele with steady work flow, or industry colleagues and friends who can recommend you and your firm for the services you provide. Becoming members of formal referral networks, domestic and international, and cultivating relationships in these groups adds and advantage to such initiatives

Invest in your existing human capital. Your associates and employees constitutes the maximum value of your firm. It is crucial to regularly conduct CLEs and career development trainings to expand on the high quality services you can offer to your

Build a strong internal ecosystem first, before you venture to find new ones and/or add to your existing one. In-house proprietary systems and technologies that uniquely support the practice of the firm, only increase your worth when you start exploring the market for investments

The Checklist

Before you declare to the world that you are looking for investments or are interested in being acquired, it is important that you first do your own unbiased due diligence. You need to find out first what a reasonably interested and informed investor might pay to buy stakes or acquire your firm. Engage an accountant or a relevant professional to prepare an independent valuation of the firm. This will not only help provide you with a better perspective of what your firm’s true market worth is, but also add credibility to the investment you are seeking. Every deal ends up succeeding or failing on the following 3 pillars:

1. The valuation, and hence the amount of investment required on the investors part,

2. The plan for transfer or share of ownership, and

3. The method of financing the transaction

Keep in mind the following things when negotiating the deal:

  • Do not enter into deal discussions without retaining and external competent transactional and tax counsel. Having in-depth knowledge and experience in niche transactions like buying and selling law firms is a plus
  • Do not represent yourself. The founder(s) is too close to the firm in order to be objective in negotiating terms. Set your own parameters and let your counsel know of your preferences. Avoid micromanaging the process, and let your external counsels and business strategists guide and advise you
  • Record everything in writing. Every term of the transaction, at every step should be in writing. even if it is a distress sell, or getting acquired by a bigger law firm, it is important to not make the mistakes that you would warn your clients about. Make sure that a detailed journal is maintained in order to execute an effective and efficient transaction
  • Just like the investor will conduct his due diligence, it is only prudent that you do the same. Just because there is money on the table, that does not excuse the fact that the deal being offered is true and viable. Ensure to find out and decide for yourself that the investor truly has the capacity to pay the money, and also the reasons as to why you are interested in bringing in the outsider is being met

Once you have taken stock of your business and ensured that the person(s) you are handing over your entire or part of the practice can do justice, do not wait around to make decisions. A good deal is only worth its buck as long as it’s timely. So take the call and make the move. Good luck and Godspeed!

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