Law firms using mergers to shed excess office space as hybrid work becomes the norm
The number of law firm mergers in the UK has jumped 23% in the past year from 99 in 2021 to 122 in 2022*, shows our new research.
M&A deals involving law firms have bounced back from the slump in activity caused by the pandemic, which slowed merger activity in the sector (see graph below).
M&A deals involving law firms typically fall into a few main categories:
- The acquirer is looking to add sector or service line expertise or new geographic presence
- The merging firms are looking to improve profits by achieving economies of scale such as by removing back-office costs
- The owners of one firm are looking to retire
- One of the firms is struggling to maintain profitability, or is facing operational challenges such as staff or partner retention
Ian Johnson, Associate Partner says: “After two sluggish years M&A activity between law firms has come back to life. Expansion minded law firms are feeling more confident about acquisitions of firms with very specific expertise or those firms that have been struggling with their profitability.”
“A very tight labour market that made it hard to recruit lawyers and grow organically, that makes growing by acquisition look more attractive.”
Due to the adoption of hybrid working, lawyers are finding they need less office space. A merger can sometimes help deal with that problem by allowing two law firms to merge their combined teams and reduce their footprint.
Such measures can bring down overall costs and strengthen operating margins.
Ian Johnson also explains that one reason there had been fewer mergers in 2021 may have been because partners in firms that had performed surprisingly well in the earlier stages of COVID-19 were deferring their retirement and therefore did not need to merge their firms with another.
Number of law firm merger deals
*Year-end 31 December