Mergers: Firms favouring organic growth
One in 10 smaller law firms are open to mergers or acquisitions, a proportion which has fallen steadily over the last two years, new research has found.
Technology and hiring more lawyers came top of the list of spending priorities for small firms over the next 12-16 months, with marketing significantly less important.
The LexisNexis 2024 Bellwether report, Lessons on law firm growth, found that the proportion of firms considering growth by merger or acquisition fell to 10% in 2024 from 13% and 16% in the previous two years.
Seven out of 10 firms said they wanted to grow over the next five years, but 63% wanted to do this organically, up from 40% in 2023.
The most important factors when considering M&A were growing the client base, increasing profitability, and retaining values and culture (32%).
The three top concerns were finding the right partner, followed by financial risks and loss of autonomy.
Researchers based their report on responses from 265 legal professionals across England and Wales, 90% of them working in law firms with between two and 20 partners.
Top of the list of spending priorities, mentioned in both cases by 56% of firms, were technology and hiring more lawyers, followed by marketing (49%, down from 79% in 2023). This was followed by investing more in business development.
More than eight out of 10 law firms said the most important area where client expectations had increased was faster communication and response times.
A much smaller proportion, 44%, mentioned more transparent and predictable fees, followed by greater flexibility and accessibility.
Firms identified keeping up-to-date with changes in the market and the law as their greatest challenge, followed by compliance, attracting new business, cybersecurity and the cost of renewing professional indemnity insurance.
Tim Rayner, head of the small law go-to-market team at LexisNexis UK, commented: “Instead of overstretching themselves, it’s reassuring to see smaller firms are pooling their time and resources into the right things.”
Meanwhile, accountants Hazlewoods reported that there was “little slowdown” in M&A activity in 2023, with 121 recorded by the Solicitors Regulation Authority, just one fewer than in 2022.
In 2021, there were only 99 mergers – the lowest total in the last decade.
Notable mergers last year included Radcliffe Lebrasseur with Weightmans and Mischon de Reya with Taylor Vinters.
Hazelwoods said: “The rising number of law firm mergers is being driven in part by consolidator firms acquiring other practices.
“These firms, which are usually backed by private equity funds, are looking to make serial acquisitions of firms that allow them to keep adding fee-earning lawyers onto a cost base that they keep firmly under control.”
Researchers said the desire by some larger law firms to invest in AI tools and other legal tech may drive additional mergers in 2024, while the scale of investment required for firms choosing to explore AI might lead smaller firms to join bigger groups.
Finally, the acquisition by leading south-coast firm Lester Aldridge of London practice Mackrell announced in May is not going ahead.
Matthew Barrow, managing partner of Lester Aldridge, said: “I can confirm that we have withdrawn from merger discussions with Mackrell.Solicitors.
“Having spent the last few months getting to know the firm and its lawyers, exploring the potential benefits of merging our two firms, we have developed enormous respect for their people and their business.
“However, on closer inspection we realised that joining forces with this particular firm would not deliver the scale of strategic advantages we were looking for.”
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