Small firms face big decisions in mergers

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By Patrick Thornton
Dolan Media Newswires

MINNEAPOLIS — One day in August 2010, Hutchinson attorney Neil Jensen called a former law school classmate and intramural sports teammate, Keith Sjodin, with a proposition.

Jensen was preparing to retire in a few years and wanted to know if Sjodin, the managing partner at Melchert Hubert Sjodin in Waconia, would be interested in opening an office in Hutchinson with a client base of 31 years.

The more Sjodin thought about the idea, the more he liked it. The firm has a smaller office in Chaska and used to have satellites in Watertown and Norwood. Growth was a priority, Sjodin said, but it had to be smart growth into untapped legal markets for it to be worth the investment.

“For us the attraction was the opportunity to work with Neil, who we all knew, and the added benefit of having that established practice there already was enough to push the idea over the edge,” Sjodin said. “We have talked about opening offices in other cities before, but we were never excited enough to pull the trigger.”

The friends decided the merger of the two firms made sense because it accomplished two goals. The Melchert firm could grow its footprint in west central Minnesota right away and add clients in areas like personal injury, employment law and banking. And for Jensen, who plans to continue to work full-time through 2014, he would know his clients and his associate at the firm would be taken care of when he stepped aside.

“I have opened more than 17,000 files since I started the practice. It would be hard for me to put an ad in the local paper and say ‘I quit,’” Jensen said. “I was getting questions from clients about what are we going to do when you’re not here, so I wanted to find a succession plan that would work for me and for them.”

After several meetings with attorneys at both firms, Melchert Hubert Sjodin decided that it would buy the Jensen firm and hire Jensen as a full partner and his associate Dorothy Bradley. Jensen owns the building where he works in Hutchinson, and MHS rents it from him with an option to buy. The merger became effective Oct. 1, 2011. The firm has 18 attorneys across several practice areas.

While deals involving big firms in tall buildings tend to grab the headlines – think Faegre Baker Daniels — it’s small firms that do most of the buying and selling. Whether looking to span the globe or simply reach across the metro area, the decisions have big implications for the firms involved.

According to Altman Weil, a Pennsylvania-based consulting company, 14 law firm mergers and acquisitions took place in the U.S. in the first quarter of 2012. That number is consistent with pre-recession levels, Altman Weil says, and the majority of those were for law firms with fewer than 20 attorneys.

Being lean and nimble also helped the firms of Bateman & Schramm in Duluth and Geraghty, O’Loughlin & Kenney in St. Paul with their merger that became effective Jan. 1. The combined firm has 12 attorneys.

The two firms both do medical malpractice work and occasionally represent co-defendants. They were able to work out many of the details over email, Skype or conference calls without the deal getting bogged down in committees or monthly partnership meetings with hundreds of attorneys.

By combining with the Duluth firm, Geraghty, O’Loughlin & Kenney could expand in northern Minnesota, a big selling point, said partner David Hutchinson.

“We saw it as a positive to have feet on the ground in Duluth and northern Minnesota. We go all over to represent clients, and this would benefit those in northern Minnesota to have us right there with better service and quicker face time and charging less for travel,” Hutchinson said.

The two firms have the same business model, and “our revenue is dependent on how hard we work. If we do good work, we get more work,” Hutchinson said, which made the transition smoother.

The impetus for the merger for Tracy Schramm in Duluth was her partner’s decision to move to an of counsel role. Schramm said merging with the larger St. Paul firm meant adding depth and support that benefitted her firm and its clients.

“We were never thinking of merging with another firm as a long-term plan, but the circumstances worked out to be a perfect opportunity,” she said.

The two firms met with their accounting people and exchanged financial information and potential client conflicts and handled the paperwork internally.

Hutchinson said combining was like adding lateral hires with ready books of business. There were no hurt feelings or fights over compensation or who would go where on the letterhead. Still, integrating the two firms has been a learning process. Melding two billing systems, health insurance plans and financial record keeping has taken time.

“Neither firm had done something like this before, so we were learning all the issues we had to deal with as we went.

They were Mac people and we used PCs. There were things that came up as we went through,” Hutchinson said.

“People-wise it has been great. Both firms were so like-minded it fell into place and when we talked to our clients about [the merger] and why it made sense, they embraced and welcomed it.”

In Waconia, Sjodin said the partners at his firm were receptive of the merger idea, but it took several meetings for the plan to be fleshed out and all the questions answered. They looked at Jensen’s financials, and at his malpractice claim history (he had none) in addition to questions on future staffing at the Hutchinson office. Working out the merger took a lot of “non-billable time” Jensen said, but it was necessary.

“The MHS firm had to decide how viable my firm was,” Jensen said. “You don’t want to go to a smaller town and merge with a guy who has his foot halfway out the door; otherwise you are merging with someone who doesn’t help you much.”

Sjodin said for the deal to work, the Hutchinson office will continue to be a priority after Jensen stops working full-time.

“Otherwise you just have the additional overhead without the reciprocal benefit,” he said. “We need to grow to keep the firm going. We have several partners who are getting closer to retirement or working part-time. We don’t want to contract.”

In the future, MHS will switch some of its regular meetings to Hutchinson in an effort to fully bring Jensen’s old firm in to the fold. So far, the deal between old friends has worked out just as they both hoped.

“I hadn’t mentioned this to Neil before,” Sjodin said, “but at our meetings and with people around the office, he has entered into the discussions and it’s like he has been with us the whole time.”