“Asset Deals” an Increasingly Popular Alternative to Law Firm Mergers

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Law firms have alternatives to flat out mergers. They could make an asset deal, an arrangement sometimes preferable for the larger firm to a merger, especially when picking up boutiques. The firm is able to acquire the new attorneys as assets without picking up such liabilities as the small firm’s real estate in the process.

For instance, Post & Schell added the four attorneys of Buck Country firm Galli and Reilly without a merger, Schnader Harrison Segal & Lewis added all six attorneys from Trujillo Rodriguez & Richards without a merger, as reported by law.com.

  

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“It’s going to happen in situations where there are substantial obligations that come along with the [smaller] firm,” said Altman Weil principal Ward Bower. “What this really amounts to is an addition of a lateral group essentially. The upside of it is you don’t end up with the obligations or the liabilities of the existing firm or the acquires.”

The arrangements vary depending on how the lawyers want to work it out, but a typical arrangement has the small firm keep their work in process and accounts receivable while they pay off their liabilities. What this means for the larger firm is that they aren’t making any money off their freshly required attorneys, not for a while, so that the new layers, meanwhile, can pay off their own business such as rent and insurance and so forth.

“Then they have to support these people from day one and that takes some working capital,” said Bower.

For large firms that don’t want to take up new real estate property, led alone unfunded pensions liabilities and bank debt, such a lateral move as an “asset deal” is a cleaner operation than a merger, and also keeps creditors at bay. There is some variation on how such arrangements actually work out depending, of course, on what the firms are after in their acquisition of the new partners.