Consolidation is on the way

Some 47 of 100 law firms of varying sizes interviewed were considering M&A―nearly a quarter of them were already in talks, and 57% were ‘actively’ seeking a deal, with the rest of the firms at an earlier stage. Acquira Professional Services, which commissioned the research, published the results last week in its white paper, ‘Growth Agenda 2022: the new era of law firm M&A’.

The firms gave geographic expansion as their chief reason for considering M&A, followed by desires to expand their range of practice areas, scale-up and compete.

Those firms not looking at M&A said they don’t need to grow. Other reasons given were the cost of M&A (cited by 36%), the loss of control (30%), the risk involved (23%) and potential loss of identity (21%).

Asked how they will drive growth, most interviewees said they expect to invest in IT. Private equity investment was another popular option, with more than a third expecting to grow through this route, while about the same amount said they would rely on sales and marketing. Some 18% of the large firms were considering flotation, as were 9% of mid-sized and 4% of smaller firms. More than a quarter of large firms were looking to buy a non-legal business.

However, the white paper struck a cautious note, noting how ‘the few private equity firms interested in the legal market are generally looking at practices with non-traditional business models, such as subscription services which generate repeat business. They want to build scale. Any notion that it is an easy way for partners to cash out will send them running for the hills’.

It also highlighted one of the reasons mergers go wrong is they often start in an informal way, for example, through a chance meeting.

Jeff Zindani, Acquira managing director, said: ‘The findings back up the general sentiment in the market that greater consolidation is on the way. By embracing an M&A strategy, even on a modest scale, with the support of an expert adviser, market opportunities can be quickly realised.’