- Just 107 mergers of law firms last year
- ‘Consolidator’ firms adopt more cautious approach to M&A due to COVID-19
Law firm mergers have fallen to a nine-year low as the economic downturn leaves consolidator firms wary of making acquisitions.
Just 107 law firm mergers were completed in 2020, down 25% on the 143 mergers that occurred in 2019 and less than half the 278 mergers that took place in 2011 (see graph below).
Much of the recent M&A activity in the profession has been driven by ‘consolidator’ firms, which are often backed by private equity funds or listed on the London Stock Exchange. These firms have a strategy of expanding their service line and geographic reach by acquiring mid-sized and smaller firms or by adding headcount to create economies of scale.
The pandemic and economic fallout has left some of these firms more cautious of making acquisitions during a period of uncertainty, with their M&A activity levels falling sharply during 2020.
There are still a large number of viable M&A targets on the market, meaning that law firm acquisitions are likely to return as the economic situation improves. Many smaller firms are owned by lawyers who do not have a viable internal succession plan and therefore need to sell to a third party in order to exit. Consolidators may pay a premium in order to conclude a deal swiftly, making these deals very attractive to sellers.Legal team Partner, Patricia Kinahan comments: “Many smaller law firm partners are still keen to exit to a ‘consolidator’ firm if they have no viable alternative options. Unfortunately, the economic disruption of the last 12 months has meant most of them have taken a step back from acquisitions until they have greater visibility over earnings.
“The pipeline of high-quality targets is still there, which means deals should be back on the menu quickly once demand returns.
“The share prices of some listed firms have already recovered, whilst PE-backed consolidators are still in a position to act quickly as they are likely to still have plenty of capital to deploy.”
Number of law firm M&A deals hit nine-year low as pandemic depresses acquisitions
