The Private Equity Takeover

The Private Equity Takeover

The UK legal services market was estimated to be worth over £50 billion in 2024 and the market has visibly undergone significant changes in recent years, continuing trends seen previously, particularly in similar sectors such as accounting and finance.

One of the key themes impacting the legal market as we rush through 2025 is primarily external investment, which was originally initiated after the Legal Services Act in 2007 that allowed non-lawyers to invest in and own law firms, but this wasn’t really seen commonly until more recently.

Private Equity investment can be a lucrative route to retirement for partners; a possible change in ownership or a get-out clause for traditional equity partners who are looking to sell up and pass the reigns to the younger generation. Though with law being a historically “traditional” practice, you wouldn’t be surprised to believe that these acquisitions have split opinion internally and externally.

There has been a new series of Private Equity models coming to light over the past 10 years in the form of company flotations or umbrella companies who own a number of smaller law firms underneath them, bringing new dimensions to the law and ownership of firms.

Lawyers aren’t typically the biggest risk takers, so it has been interesting and sometimes surprising, to see how many law firms are being acquired by larger corporations and changing the way they do things.

Let’s assess some pros and cons of Private Equity takeovers:

Pros:

As a new approach to working in the legal sector, private equity allows firms to be more competitive with hires, strategic recruitment and remuneration packages. A shift to hybrid and homeworking has also helped widen the talent pool, especially for companies owned by Private Equity firms who are on a national basis, with multiple offices to choose from. This also gives an opportunity for the lawyers to work on a wider range of work on a national basis, rather than being restricted to a certain demographic as previously seen.

With help from Private Equity investors, law firms (as we have seen with the Knights model) have been scaling up with mergers and acquisitions, expanding into new locations and new practice areas; allowing them to be more acquisitive and strategic with their offerings and growth plans. This is also an appealing aspect to some lawyers as larger firms with more office locations offer more motivational career structures to keep employees engaged and ambitious.

This model stops historical partners from leaving and the firm DNA dying, keeping the brand alive in the new generation. It also reduces the “panic” when partners decide that they want to sell up, there is less of a need to scramble to find a merger with another company which could take months or years; this is a quicker way to secure investment and pass the business over.

What is driving such interest in law from Private Equity companies?

Legal services have always been a reliable, “safe”, traditional source of revenue and an industry as old as time, so investing in such an industry seems like an obvious choice for maximising on investments, and the reliability of financial growth. This is supported by consistent market demand for legal services across personal and business matters within private client for the individual, and mergers and acquisitions or litigation for the business, as two clear examples.

No matter how an economy looks, even if there is a downturn in a demand for legal or financial services, there will always be one area of Law which booms as a result. In covid, we saw this with private client, healthcare and regulatory law, and subsequently as things settled, we then saw an increase in litigation and employment matters as companies returned to work and navigating the new working world.

The introduction and growth of Legal Tech has also driven investment, allowing law firms to become more efficient, slicker and more aware of time vs commercial return, which if a non-lawyer is running the business side of the operation, makes a lot more sense. Law firms are now being run like businesses, rather than law firms. The main question is, does this completely change a law firms’ identity and ethos, or can we really achieve a happy medium where law firms are more profitable and unstoppable than ever, because they are now critically assessed like a business?

What are the potential issues?

Cons:

It could be demotivational to those that aren’t going to benefit from the changes to the DNA of the firm; some finds the rewards unachievable, and they become less engaged.

There are several risks that Private Equity businesses face when investing in the legal sector, and the main that we see, is the very talent which populates it. As mentioned above, the legal industry is one of the oldest created, so naturally lawyers don’t like change and are very risk-averse, so the risk is how different these models can be and the changes that subsequently happen internally when ownership, management and key structures do change. This is something as recruiters, we have seen happen time and time again.

Another risk, which we are seeing less and less due to the popularity and growing nature of this type of investment, is a non-legal company not actually understanding what it takes to run a law firm, so having the tools to do this and mitigate risk is crucial.

Finally, something we have seen more of in the regions is some smaller firms who get swallowed up by these larger corporations lose their “identity” – their pride has always been to look after the smaller client, the “high-street” approach, and concerns that expanding ambitiously and offering a comprehensive “all under one roof” offering, loses their DNA to the personal touch that a smaller firm often provides.

We have surmised that undoubtedly there is a lot to consider on the topic of Private Equity investment and ownership; this is an evolving topic which will present new and changing positives and negatives as we see more acquisitions take place.

There are a number of factors for people to consider and we appreciate this is an individually focused journey. 2025 will certainly be an interesting year to observe the continued growth of Private Equity investment and acquisitions for law firms across the country.

If we can provide any advice on the prospects of joining a Private Equity backed firm, get in touch with our consultants today and we would be happy to talk this through from an employee’s perspective.

If you are a partner or owner of a law firm and are thinking about succession for your firm and your exit/ long term stability, we can see how having more options would be an attractive theory for your long-term career.

We are actively speaking to owners and senior partners about this very topic and their options, so we would be interested in your views and happy to give you context as to how we are seeing this market develop, as well as being able to provide bespoke advice for individual circumstances.

Contact Leona Taylor

• 📞0161 672 3110
• 📩 leona.taylor@saccomann.com 
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