Not Every Purchase Is Wise

In South Africa, banking group Nedcor purchased a law firm, ostensibly for the purpose of growing its business advisory services available for customers of the bank. However, the law firm didn’t perform as expected and lost money for the bank.

Now, the bank is selling the law firm back to its principals at a substantial loss to the bank; the sale price is estimated to be one-fourth of the purchase price, all told.

Nedcor CEO Tom Boardman said yesterday the deal was “fundamentally flawed” because as a Nedcor subsidiary the firm struggled to attract legal talent as it only paid lawyers a set salary not a percentage of profits like other firms.

In addition, the non-compete clause was about to expire, thus leaving many of the firm’s top lawyers free to leave and start up a new, competitive law firm.

The bank, in South Africa, was merely doing what the large accounting firms did (until that profession imploded) by purchasing a law firm to add to its stable of services in an effort to become a “one-stop shop.”
The principle is not dead, just delayed in the United States! It makes sense.

Today, a majority of the States now permit the sale of a law practice though the buyer still must be a lawyer. But, take a look at the insurance industry and its “captive” law firms; they have found a way around this challenge. Where the economics justify the solution, lawyers and third parties will find a way to “merge” their talents and services to offer clients.

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