What is the Impact of a Low Cost Center When Law Firms Merge?
Earlier this week Kevin Colangelo of Elevate Services wrote a nice blog post, The Business of Law: Addressing Law Firms’ Concerns Over “Control” in Managed Services Relationships. He explains the benefits of outsourcing middle office support over building a captive and addresses lawyers’ concerns with control. News today suggests there may be yet one more benefit of outsourcing over captives…
The ABA Journal reports today that Bingham McCutcheon has approached four other law firms about a potential merger. Bingham opened a Lexington, KY captive low cost service center in 2013.
How does owning a captive service center play out when firms consider merging? A Bingham merger partner would need a strategy for what to with the Lexington, KY strategy. Might it move its legacy staff there (if there is room)? Would it continue “as is” with each firm’s legacy staff operating wherever it resided? Might a merger partner want to disband the center?
This is not the first time the question arises. When Orrick and Pillsbury came close to merging, presumably they had plans for their respective centers in Wheeling, WV and Nashville, TN. Conflicts scuttled the merger so we will not know. But the operational issues of having two centers cannot be easy. And with more and more Big Law low cost centers (see my prior blog post, Will Low Cost Centers become a Big Law Norm?) and mergers, the question will likely come up again, even if Bingham does not merge.
I suspect that a low cost center complicates a merger, if not at the strategic level then at the operational, integration level. For that reason, I think that outsourcing middle office support makes more sense. A well-crafted outsourcing agreement contemplates firm growth, shrinkage, or merger – it provides options and flexibility. For example, the new joint entity might have the right to, over time, wind down the outsourcing. Or it might have an easy ability to scale up the support, which would help rationalize staffing across two firms.
Low cost service centers have been around almost 15 years. We don’t know yet how they play out in mergers. It may not be long before we do. And then it will be interesting to see if this changes thinking about captives versus outsourcing.
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