Deal maker or deal breaker? 11 reasons why law firms and other professional practices should not neglect IT due diligence when merging with or acquiring another firm.
M&A activity in the legal sector shows little signs of slowing, with continued cost pressure and succession issues driving consolidation. For firms with a solid balance sheet this may mean an opportunity for a ‘strategic acquisition’.
Christiaan Frickel, legal IT consultant at independent IT consultancy practice, Lights-On has guided many law firms through the IT side of mergers and acquisitions and has seen first-hand what can go wrong when the IT due diligence is neglected.
During law firm M&A, the complexity and risk of IT functions and systems integration is often underestimated and yet it can make or break a transaction, cause operational chaos and disrupt client service.
Whether you are going for a ‘big bang and everyone on the same systems’ approach or a more hybrid integration of the two firms’ technologies, a clear picture of your target firm’s IT position is a critical part of the transactional due diligence.We have set out below 11 good reasons why law firm leaders should pay increasing attention to the IT aspect when carrying out their M&A due diligence:
IT due diligence will identify incompatible systems and also potential synergies
Merging firms often operate different practice management, case management and document management systems. An early approach to dealing with this complexity can help to maintain fee-earner productivity and good client service. Ignore it and you can end up with data silos and costly process rework. A strategic IT review before the merger can highlight the highest risk areas and help identify potential synergies.
- … and help with your integration plan and user adoption
Understanding the systems, platforms, software and technology in your target firm will help you create an effective integration plan and support user adoption. Even the best systems fail without user buy-in and very few people like change. Merging firms must align internal process and workflows, provide training, and secure early leadership endorsement to drive adoption and efficiency. (On the training point, we always recommend investing more in training than you think you may need and having ‘floor walkers’ to troubleshoot issues.)
- You can identify any vendor and contract ‘misalignment’
Overlapping IT contracts and software licences can lead to unnecessary expense. A thorough review of existing agreements ensures cost-effective consolidation. During this process you can also identify which contracts can and can’t novate over to the newly merged entity.
- Get a clear picture of IT software subscriptions
A lot of legal IT is now on a subscription or ‘software as a service basis’, from Microsoft licences upwards – and these are often on a fixed term basis. IT due diligence can give you a clear picture of the remaining terms and associated costs to help structure your deal.
- Understand respective levels of tech sophistication
A firm’s technology suite is increasingly part of the employee value proposition for busy lawyers. Your target firm may have better tech – but will it scale up? If their people need to be brought into a less modern technology suite it is good to be prepared so you can help ensure engagement and buy-in.
- Their data is your data…
The date you sign is the date you take responsibility for the other firm’s data. Are you confident in their data handling standards and compliance?
- …and data migration risks need to be mitigated
Anyone who has carried out a data migration project will know it can be a complex and risky process. Client confidentiality and regulatory compliance are of the upmost importance and poor data migration planning can lead to data loss, duplication, or corruption of critical case files. A structured migration plan with robust testing minimises these risks and can prepare you for the inevitable audit from your accountants!
- Your future cybersecurity will depend on it
In our experience at Lights-On, we rarely see two law firms approach cybersecurity in the same way. It is essential that you understand the target firm’s approach and capabilities – particularly if they have delegated the responsibility for cyber protection to their managed service provider. Different cybersecurity standards and maturity between firms can propagate or introduce cyber vulnerabilities. A unified cybersecurity approach, including penetration testing and updated access controls, must be implemented as part of the merger process to protect client data. Merging firms present a real opportunity and target for cyber criminals so be extra vigilant during merger or acquisition projects.
- It can be a great negotiating tool!
Effective IT due diligence can be a valuable part of your negotiations and allows indemnities to be added in to deal with issues.
- There is always time
An IT due diligence review does not have to be a costly or drawn out process. While dependent on complexity and information availability, our experienced team can complete reviews quickly ensuring that progress is not unduly delayed.
- You don’t need to involve the internal IT team
A successful merger or acquisition will run more smoothly with early engagement with your tech people, yet it is not always feasible to involve the internal team due to confidentiality. By working with independent IT consultants you can maintain confidentiality, and still quickly get a clear and objective view of the IT position in the firm you are considering – and its compatibility with your own.
An IT due diligence review is a relatively inexpensive way of acquiring good quality information that can safeguard your firm’s position and ensure you are entering into a transaction with a clear picture of what you are acquiring.