Zindani: PE’s approach is useful lessons for law firms
Private equity (PE) has invested nearly £1.2bn into law firms over the last five years, with a record £537m coming last year, according to figures published today.
With international firm DWF, conveyancing giant Movera, employment law business WorkNest and compliance data subscription platform aosphere on its books, Inflexion is the biggest player, having spent nearly £450m in that time.
The research by Acquira Professional Services said that, in a rapidly evolving market where standing still was simply not an option, PE investment offered law firms “the firepower to scale, innovate, and future-proof their businesses”.
At the same time, it was not straightforward, said Private Equity’s Next Frontier: Transforming UK Law Firms, with investors needing to understand “the deeply rooted culture of law firms, which are often hierarchical and reliant on the reputation of individual partners”.
It went on: “From cultural integration to governance challenges, private equity is not a one-size-fits-all solution. Yet, for forward-thinking law firms, it could be the catalyst that redefines their future.”
The report recognised too the reputation PE sometimes has as an asset stripper and just focused on the bottom line, with the potential to discourage and driving out staff.
“It is worth noting, however, that private equity itself is deeply reliant on human capital. As the legal profession is fundamentally a people-driven business, the loss of key talent would be counterproductive for any acquirer.
“Successful private equity firms often recognise the importance of alignment between their objectives and those of the professionals they rely on.”
Acquira said it had interviewed more than 10 leaders from the top 100 law firms and 20 from the next 200. “While overall sentiment towards PE remains lukewarm to negative, what stood out was a deep-rooted concern about the influence and control PE investors could exert in the legal sector.”
There has been a notable spike in PE activity in recent months – such as Horizon Capital buying Midlands practice FBC Manby Bowdler and CBPE investing in national firm HF – and the white paper said PE investors were increasingly drawn to the legal services sector, “spurred by significant capital reserves (often referred to as ‘dry powder’) and the need to broaden their portfolios by finding consistent returns in new markets”.
The report quoted senior investment manager Robin Elley from Waterland Private Equity, a Dutch buy-to-build investor that made its first investment in the UK legal market through North-West based Beyond Law Group in 2024: “Private equity investment into law firms is still nascent, and yet to reach a tipping point. The UK legal market offers opportunities as it is highly fragmented, which offers scope for consolidation and revenue growth.”
But the report highlighted the risks too. “Common pitfalls include excessive debt, cultural misalignment, over-leveraging during expansions, and potential regulatory obstacles. Thorough due diligence, cultural alignment, and carefully managed financial structures are crucial to a successful investment.”
Acquira’s M&A tracker recorded over 150 deals in 2024 and it anticipated an even more active year ahead, although perhaps not as much spent by private equity as last year. In 2023, £377m was invested.
For law firm leaders wary of external ownership or tighter oversight, alternative financing options – ranging from traditional bank loans and specialist lenders to hedge funds – may be more appealing, the report continued.
“It is important to note that PE deals vary widely; a full buyout is only one option among minority stakes, co-investments, and structured partnerships that can preserve elements of a firm’s autonomy.
“Ultimately, for private equity to be a springboard rather than a stumbling block, leaders need a firm grasp of both the potential benefits – capital for expansion, upgraded technology, enhanced managerial skills – and the possible drawbacks, such as diluted control, intensified performance targets, and cultural disruption.”
Jeff Zindani, managing director of Acquira Professional Services, predicted that one new direction for PE was likely to be into corporate/commercial firms, where Inflexion’s so far successful acquisition of DWF may attract others.
In its last financial year, DWF’s revenue was up 14% to £435m and net promoter score rose too.
He said: “PE investment is not for everyone but PE firms vary enormously, so it is vital to find an investor that is the right fit with the values of your firm.
“Being fully aware of all options for growth is essential. Even if a law firm decides that the PE route is not for them, the industry’s success in the buy-to-build approach is a useful masterclass in how to grow through adding viable businesses in complementary practice areas—something that can be achieved through M&A with or without private equity involvement.”