Exclusive: Law firm mergers drop to nine-year low as Covid-19 turns consolidators cautious
Law firm mergers have fallen to a nine-year low, as the economic downturn brought about by the Covid-19 pandemic has left consolidator firms wary of making acquisitions.
Just 107 law firm mergers were completed in 2020, down 25 per cent on the 143 mergers that occurred in 2019 and less than half the 278 mergers that took place in 2011, according to data from business advisers and chartered accountants Hazlewoods.
Much of the recent M&A activity in the legal profession has been driven by ‘consolidator’ firms, which are often backed by private equity funds or listed on the London Stock Exchange.
These firms have a strategy of expanding their service line and geographic reach by acquiring mid-sized and smaller firms or by adding headcount to create economies of scale.
But the pandemic and economic fallout has left some consolidators firms more cautious of making acquisitions during a period of uncertainty, with their M&A activity levels falling sharply during 2020.
There are still a large number of viable M&A targets on the market, meaning that law firm acquisitions are likely to return as the economic situation improves, according to Hazlewoods.
Many smaller firms are owned by lawyers who do not have a viable internal succession plan and therefore need to sell to a third party in order to exit. Consolidators may pay a premium in order to conclude a deal swiftly, making these deals very attractive to sellers.
Patricia Kinahan, partner at Hazlewoods, said: “Many smaller law firm partners are still keen to exit to a ‘consolidator’ firm if they have no viable alternative options. Unfortunately, the economic disruption of the last 12 months has meant most of them have taken a step back from acquisitions until they have greater visibility over earnings.”