Traditional legal model shaken by investor interest and IPO ambitions
External investment is increasing in mid-size legal firms, according to a new report, which revealed that nearly 70 per cent of firms have been approached by private equity investors or PE-backed entities in the last year.
New data from MHA, in conjunction with the Law Society, shared with City PM, shows that the majority of law firms with eight to 50 partners are increasingly in contact with PE investors or other PE-backed firms.
The data indicated a shift from mergers to acquisitions, with just three per cent planning merger activity in the next 12 months, compared to 17 per cent planning acquisitions.
Nearly a quarter of firms also said they were actively considering an IPO. However, the last time law firms were listed on the London Stock Exchange, it didn’t go well: Ince Group filed for administration in April 2023, and DWF delisted from the main market.
Gateley, Knights and Keystone Law are the only legal businesses that remain on the LSEG.
Robert Blech, head of professional practices at MHA, said: “Combined with rising costs and a regulatory landscape in flux, these factors create real uncertainty for the sector.”
Despite rising costs and headwinds, 62 per cent of firms saw revenue grow by more than five per cent, with over a third reporting double-digit growth. Only three per cent of firms saw a drop in turnover this year, a significant improvement from the 13 per cent who suffered declines in the previous study.
Partnership model under the scope
The attitude towards the traditional model is changing, with only 14 per cent of those surveyed reporting that associates have a strong interest in becoming partners, a historic low for the profession.
The data noted that 43 per cent of firms stated that partnership is now less desirable than in previous years, driven by personal liability, rising costs, and regulatory burdens.
However, amid a surge of interest from private equity firms in law firms, junior lawyers fear that their involvement results in “restrictive contractual clauses” that divert profits to external investors rather than rewarding the staff who do the work.
MHA’s report also highlighted that hybrid working is no longer seen as a perk but an “expectation,” with 13 per cent of staff departures linked to flexibility demands. While the “downsizing” era is over, after 49 per cent of firms revealed no plans to change their office space, some are reaching capacity again as in-office attendance stabilises.