- Only 99 law firms acquired last year – down from 278 ten years ago
- Lull in dealmaking means many good-quality law firms are still on the market
The past year* has seen law firm M&A deals fall, with just 99 law firms acquired, a fall of 7% from 107 in the previous year.
The slowdown in the number of law firm mergers was largely caused by the pandemic, with law firms focusing on survival as opposed to selling back in March 2020.
Since then, business has taken off for many firms, particularly for those involved in M&A and residential property. Some firms have enjoyed their best financial results in the last ten years, discouraging partners from selling when they are enjoying bumper profits.
Ian Johnson, Associate Partner, explains that law firms may now be more willing to merge or be taken over as the economy begins to slow down. Law firms often use mergers to reduce their cost base by combining and rationalising support functions and offices.
In recent months, a fall in new work as the UK economy slows, combined with the challenge of attracting new talent, has seen more law firm owners look to sell their stakes. Some firms will be acquired by so-called 'consolidator' firms, which are often backed by private equity investors.
Ian Johnson adds that the lull in dealmaking activity in the legal profession has left many good-quality acquisition targets on the market. Many mid-tier firms are looking to improve their profitability by achieving economies of scale through mergers. At the smaller end of the market there are a number of firms looking to be acquired as partners approach retirement and look to exit.
Says Ian Johnson: “Over the last two years, law firm partners simply haven’t wanted to sell as they watched the profits roll in. Business has been booming and a lot of partners have been enjoying the profit distributions.”
“As the economy slows and the boom for law firms ends, we expect to see more partners putting their firms up for sale.”
“As dealmakers come back to the table, they are finding that owners of a lot of good-quality firms are now ready to listen to offers. For older partners at smaller firms selling their holdings is becoming a key part of their plan to fund their retirement.”
“Consolidator firms looking to scale up or expand their geographic footprint through acquiring smaller firms will find there are a lot of opportunities to do so at the moment.”
Law firm mergers hit ten-year low
* Year end December 31 2021. Source: Solicitors Regulation Authority