Law firm mergers drop to decade lows as legal sector boom slows M&A activity
The past two years’ boom in demand for legal services has seen M&A activity in the UK’s legal sector drop to decade lows, research from accountancy firm Hazelwoods shows.
The number of mergers between UK law firms has fallen to its lowest levels in a decade, in plummeting from highs of 278 in 2011 to long-term lows of just 99 last year.
The drop in mergers comes as a boom in the legal sector, due to far-reaching economic impacts of Covid, has led to a drop in dealmaking, as law firm partners seek to enjoy bumper profits rather than selling their firms, Hazelwoods partner Ian Johnson said.
“Over the last two years, law firm partners simply haven’t wanted to sell as they watched the profits roll in,” Johnson said. “Business has been booming and a lot of partners have been enjoying the profit distributions.”
However, the economic downturn forecast to hit the UK in coming months could reverse the downwards trend, as consolidator firms seek to capitalise on the dip by buying up smaller law firms.
“As the economy slows and the boom for law firms ends, we expect to see more partners putting their firms up for sale,” Johnson said.
“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,” Johnson said.
“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.”