Law firm mergers down as lawyers hold out for private equity appetite
Mergers within the UK legal market have declined by 25 per cent in the past year as senior partners within law firms are holding out for a bite from private equity.
According to exclusive data from accountancy firm Lubbock Fine shared with Morning Wire, mergers between UK law firms stood at 91 in 2024, down from 122 in the previous year.
One of the main drivers for the drop is that senior partners are increasingly delaying mergers or sales in the hope of attracting a higher bid from a private equity-backed law firm.
Mark Turner, partner at Lubbock Fine, explained there has been growing interest amongst private equity houses to invest in law firms, especially those with a high percentage of retained clients.
Private equity firm Inflexion de-listed DWF from the London Stock Exchange last year, and in the same month, the south coast firm Trethowans was acquired by legal services provider Lawfront, backed by private equity firm Blixt.
However, Turner noted that private equity’s entry into the legal sector is in its infancy and will likely gather pace over the next two years.
Within the regional legal market, smaller firms have been experiencing a market slowdown, which is why legal groups, such as Knights, have acquired more than 20 firms since 2018.
Over 2024, 498 law firms ceased practising, according to data from the Solicitors Regulation Authority (SRA), with issues including financial difficulties and the mishandling of client money.
Turner pointed out that the recent increase in national insurance contributions for employers could add significant financial pressures on many small and medium-sized law firms to merge in the coming years.
“Tax hikes will dent the profit margins of those law firms that can’t pass those costs onto their clients. A loss of income may compound this as their clients similarly tighten their belts.”
“If a firm continues to lose money after all the obvious cost-cutting has been done, then a merger may be the only way to keep the practice afloat,” Turner added.