Private equity investment in law firms presents opportunities and challenges

In the UK, over the past five years, private equity investors have poured nearly £1.2bn into law firms, with an estimated £534 million recorded in 2024 alone, according to figures published by Acquira, a firm which specialises in brokering mergers and acquisitions for law firms.

Seeking specialisms

While some larger law firms have piqued the interest of private equity investors, in a heavily saturated legal market, private capital acquirors are increasingly looking to leverage boutique law firm expertise in specific regions and distinct legal specialisms – from family law, employment law, risk compliance and IP advice to personal injury and commercial litigation.  

Lawfront Group, backed by private equity investor, Blixt Group, acquired East Midlands-based Nelsons Solicitors in 2023 and Manchester-headquartered Slater Heelis in 2024. Last year Bahrain-based private equity group Investcorp also acquired the UK’s largest family law firm, Stowe, while Beyond Law Group secured investment from Waterland Private Equity to support its strategic growth ambitions.

Process-driven specialities like personal injury, which typically involve limited numbers of lawyers and paralegals overseeing tasks, are also increasingly enticing institutional investors targeting areas where AI and automated technologies can boost efficiencies and profitability, giving them a greater return on their investment.

As law firms and other professional services firms in the UK continue to attract interest from international players in the US and elsewhere, these acquisitions raise a number of important considerations, both for private capital investors and the firms they are targeting.

Structural considerations

Acquiring a professional services firm requires navigating the applicable regulatory regime. The different array of law firm structures – whether partnerships, limited liability partnerships (LLPs) or limited companies – each bring their own employee incentive expectations and tax implications.

The prospect of corporatising a law firm may meet some resistance from partners, whose value principally derives from their abilities as “rainmakers” and who are accustomed to being remunerated accordingly. Ensuring they have a good understanding of how much management control they can expect in the new firm, the duration of their tie-in and any restrictive covenants related to the sale will be crucial to gaining partners’ buy-in from the outset.

For more junior lawyers that have pegged their entire career on climbing the ranks to partnership, there are often concerns about what their career progression will look like under a private equity structure.

As law firms continue to offer increasingly sky-high salaries to attract top talent, providing fee-earners with employee contracts that offer competitive incentive terms and staff protections will be critical to retain top performers as businesses changes hands. Investors could benefit from undertaking benchmarking exercises to better understand lawyers’ remuneration expectations and the reality of the market within which they operate.

Consolidation challenges

Private equity backed consolidation in the market is already gaining pace as a growing number of firms adopt a “buy and build” strategy, acquiring multiple small law firms with different or complementary expertise. This trend makes it even more imperative for investors to ensure that new law firm bolt-ons will fit culturally into the new structure and not risk creating internal frictions.

The potential for client attrition is also an important consideration for investors in the professional services space since so many client relationships rely on personal relationships with specific individuals or teams. This tends to make these relationships more portable, which can be advantageous to buyers. The downside comes if, post-takeover, the relationship partner leaves the firm, taking the client with them.

Restrictive covenants in partners’ contracts can help mitigate these risks. A deferred consideration price structure – where the buyer pays a portion of the purchase price to the seller at a future date – can also act as a useful tool to bridge any potential valuation gap that might arise after the initial acquisition. It gives the sellers a vested interest in making the integration process as smooth as possible, while also protecting buyers from any potential unforeseen liabilities.

Regulatory oversight

The influx of private equity investment into the legal market marks the latest step in law firms moving towards a more alternative business structure model. As with other sectors like accountancy and wealth management, private equity-backed consolidation in law firms may attract additional regulatory scrutiny. The Financial Conduct Authority is undertaking a comprehensive review of consolidation in the financial advice sector – the first of its kind for almost a decade – indicating just how seriously the regulator is taking this latest wave of consolidation in that sector.

As more private equity investors take the plunge into the professional services sector, undertaking thorough due diligence, obtaining appropriate advice from advisers experienced in navigating the applicable regulatory and structural issues, as well as ensuring business, governance and cultural alignment, will be critical to securing their longevity in the sector.