The managing partner of a ten-to-15 partner law firm in a large town is invited to lunch by the managing partner of a 50-plus partner practice who announces that his firm would like a merger.

In such a situation there is a tendency for the smaller firm to react by calling in the accountants and looking at the figures.

This is the wrong approach.

Financial information is not relevant until the firm has decided that a merger is a possible option in achieving its strategic objectives.

Instead, the managing partner of the smaller firm should ask four basic questions.-- Will this merger help achieve the firm's strat-egic objectives?-- Does this merger provide resources that will give specific competitive advantages in a new market position or which will enable the firm to build these more easily than if it was alone?-- What are the similarities and dissimilarities in the two firms' cultural and behavioural profiles? Can the two firms be integrated in a reasonable period of time?-- Would the firm be prepared to be taken over by a larger one?The managing or senior partner should study the business objectives of the firm.

What is the market position to which it aspires? What kind of firm is it endeavouring to become over the next three to five years? If it is a well managed firm these issues are already likely to have been discussed by the partners.

If this is not the case, the partners should sit down as quickly as possible and work out the firm's objectives without reference to the firm making merger overtures.

If the proposed merger will not help the partners to achieve their strategic aspirations then the offer should be politely refused.The firm should be careful, however, not to be blinded by its own strategic objectives.

Although a merger of the type proposed might not have been within its contemplation, it might open up poss-ibilities that had not been considered before.Using merger as a means by which the firm's market position can be enhanced is one of the most difficult and complex issues associated with a merger.

New clients and existing clients will expect the firm's performance to match that of firms already in that market position.

Many merging firms also believe that they will be seen as better just because they are bigger.

The danger is that unless the firm makes the necessary cultural and behavioural changes, the firm will merely be seen as a larger version of itself in its previous market position.

Test this by asking what it is about the merger that will enable the firm to sell new services to existing clients and how it will win new clients.Another consideration is that firms may have cultural profiles which, although similar, may not allow the changes necessary for enhanced competitiveness.

For example, if both partnerships have a high degree of partner autonomy but the desired market position of the new firm requires team work, cohesion and a sharing of clients, then the necessary change is unlikely to occur without considerable effort.No firm should merge with a larger firm unless it is comfortable with being taken over.

The best mergers occur when neither side is concerned about being taken over, when a strong business case exists and people are motivated to achieve the objectives of the merger.

In these cases, negotiations are conducted in the context of how best to achieve the strategic objectives of the new firm rather than with each side protecting itself from the other.

While the issue of takeover is emotive, it is of less concern when a firm has developed a very clear sense of its direction and where merger is seen as a means to an end.Only when these questions have been answered should the economics of each firm, and every work-group, be considered.

However, knowing the income, costs and profit is one thing; understanding how profit is earned is another.

Profit per partner in two firms may be similar but earned in entirely different ways.

Look at areas such as the average charge rate per hour, the number of hours worked by each fee-earner and the ratio of fee-earners to partners in order to understand how profits are earned.

Make sure the partners are kept informed about any discussions which the managing partner is having with the larger firm.

Merger plans may founder because of opposition from partners.Finally, before saying yes, make sure the firm has answered this question: if merger is a way of achieving the firm's strategic objectives, is there another firm which would meet these needs even better? If a firm is considering merging, it should at least check to see if the opportunity offered is the best available.