Law Society Gazette - Law Firms Put a Lid on M&A Activity - Really?

The recent Law Gazette article  Risk-averse law firms put brakes on M&A  paints a somewhat skewed picture of the current M&A market. It uses a single survey of 308 lawyers and frames risk aversion as the primary driver for a perceived slowdown in mergers, overlooking rather a lot of other factors that drive the law firm sales market.

308 Lawyers Make a Market?

Firstly, the article’s central premise – that law firms are "putting the brakes on M&A" due to "risk aversion" – appears to be built on rather flimsy foundations. The sole piece of evidence presented is a LexisNexis survey of 308 lawyers, stating that only 5% are considering mergers or acquisitions in their growth plans, down from 10% and 13% in previous years. The UK legal sector comprises of over 9,000 law firms, ranging from sole practitioners to global giants. A sample of 308 can hardly be considered representative enough to draw such sweeping conclusions.

Only Law Firms Buy Law Firms?

The article demonstrates an ignorance of the M&A market. A lot of acquisitions are not made by law firms, so interviewing law firm owners to determine the status of the current market is inevitably going to be inaccurate. A lot of acquisitions are by individual solicitors, backed by external finance of some sort or another, and not law firms. In fact a lot of law firm acquisitions by other law firms are not really acquisitions in the sense that money has changed hands. They can also be one firm doing another firm a favour to enable retirement to take place where the other firm has no succession plans in place.

Risk - Major Influence

Talking about risk aversion as the sole inhibitor to M&A is completely wrong. Whilst risk forms a major part of expansion and growth plans, it is a fairly small part of firms' ongoing plans when it comes to making acquisitions. Strategic decisions are often driven by opportunity. Law firms and other types of buyers will very often keep an eye on the market to see what is out there, and acquisitions occur without any major planning, particularly amongst smaller sized firms.

Finding Partners

The article also indicated that in the case of mergers, 'half of those polled said they were put off by the difficulty of finding the right partner'. Difficulty in finding the right partner isn't a new phenomenon in M&A; it's an inherent challenge that has been around forever. What specific difficulties are these firms encountering - is it cultural misalignment (very common), differing visions for the future, incompatible client bases, or a lack of suitable targets in a highly competitive market? The article overlooks the profound impact of broader economic conditions. A challenging economic climate naturally encourages caution, not necessarily 'risk aversion', but a prudent approach to major financial commitments. High inflation, increasing PII premiums, rising interest rates, and a potential recession would naturally lead firms to prioritise cash flow, profitability, and survival over potentially costly and disruptive M&A activity. It's a strategic response to a dynamic environment, not simply an aversion to risk.

M&A Activity

Finally, actual M&A activity in the small-to-medium sized law firm market highlights the misleading nature of the article. We have had one of the busiest years for M&A work in our brokerage company. We work primarily with £0-£3 million turnover law firms and all our listed firms have enquiries against them at present. Some buyers are of course better than others and there is a very high churn rate when it comes to law firm sales & purchases (one of our major roles is to filter out the tyre kickers!), but the overwhelming atmosphere on the market is one of high levels of activity.

We think this type of article can be incredibly misleading and somewhat regrettable, as it points to a slowdown in a market where this hasn't happened in our experience. There are always law firm owners looking at M&A activity for a whole host of reasons, whether it is retirement planning, succession, merging due to financial difficulties, illness, selling for profit, expansion, growth, acquiring branch offices, building a national brand, creating a business for a family member, opening a new business due to insurance problems and much more besides. This never seems to change and why there is always a market out there for law firm owners.

Jonathan Fagan is Managing Director of Ten-Percent Legal Recruitment and a non-practising Solicitor. Ten-Percent Legal Recruitment provides online Legal Recruitment for Solicitors, Legal Executives, Licensed Conveyancers, Legal Cashiers, Fee Earners, Support Staff, Managers and Paralegals. Visit our Website to search our Vacancy Database.