May 10, 2025
To put it very simply, its because a) its an incredibly fragmented market and b) investors can see so many ways of increasing turnover, improving profit margins and cutting costs through scale and the implementation of technology.
Fragmented Market
The SRA produce a monthly list of statistics for the number of solicitors, law firms and ABS structures in England & Wales – https://www.sra.org.uk/sra/research-publications/regulated-community-statistics/data/solicitor_firms/
As at the time of writing this article, April 2025, there are 9,125 law firms regulated by the SRA. This does not include CLC regulated firms or ABS firms. In 2010 there were almost 11,000 law firms. The number has hardly shrunk at all (particularly when ABS firms are not included).
Most law firms we see coming to market are in the range of £50-£1 million turnover. The overwhelming majority have a) retiring partners, b) an ageing staff team and c) owner managers. Buying a traditional law firm requires an existing solicitor or SRA regulated law firm to be the purchaser, unless there is a conversion to ABS status.
Increasing Turnover
In most areas of law, external investors can see the opportunity to improve marketing. A good percentage of law firms we come across do very little marketing indeed, other than perhaps clean their front window from time to time! Investors love referral fee arrangements; a lot of solicitors avoid them like the plague.
Improving Profit Margins
Usually the main costs in a law firm are the wages and the professional indemnity insurance. Thanks to the iron grip the insurance industry has over law firms operations, there is not a lot you can do about the latter, but the wage bill tends to be a focus for investors. The staff teams at certain sized law firms generate very little in terms of billing, yet take home a significant portion of the profits. Investors look at ways of cutting costs and a close examination of the staff team performance is one major place they turn to immediately. Other items include office rent (investors love remote working set ups), salaried staff v consultancy arrangements and inefficient case management – its amazing how many firms still have a limited functioning or non-existent CMS.
Cutting Costs Through Scale
This is something that a number of investors over time have looked at doing, but never quite managed. Taking over chains of high street law firms, removing the back office to be managed from a central or offshore location, and continuing with consultant fee earners. Consolidators have tended to go after distressed businesses or desperate to retire partnerships, but this hasn’t yet become a success generally for investors – in these cases the firms need staffing, and recruitment into small high street law firms remains a serious problem. Veterinary practices have started to consolidate and be owned by large multinational businesses, with economies of scale applied across the board. We have never found a national chain in law to have the same success. You know the names – they appear in the Gazette on a regular basis! It is quite possible that an investor will work out a way of making this work at some point.
Technology
We have had so many calls from private equity backed investors all with the same idea, which is to implement AI to streamline the work of law firms, increase turnover, generate higher profits and build a viable business for sale within 5 years. Has anyone managed it yet? Not as far as we know, although Fletchers in the North West seem to have boomed in recent times with this model. It may be for this reason that private equity is now looking closely at the legal profession.
Summary
Law firms are starting to become sexy again – we have seen a large increase in deals going through and investors moving into the market. Private equity is looking at the sector, and we think that in the next few years we are going to see the emergence of a number of extremely large players trying to buy up chains of smaller law firms to build up significant presence.
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