By Legal Futures Associate Recovery First [1]
Barely a week goes by without another law firm merger, acquisition or investment deal making the legal headlines.
In recent months alone we’ve seen Fletchers continue its acquisition strategy, Express Solicitors strengthen its position through further deals, Knights linked with another significant acquisition, and private equity-backed groups continuing to build regional platforms across England and Wales. Alongside this, firms such as Lawhive, Setfords and other alternative legal businesses are reshaping what growth looks like in the profession.
It is clear that the legal market is consolidating. But while much attention is given to the deals themselves, far less is said about one of the most practical challenges they create. What happens to the work that doesn’t fit the future business?
Growth often means letting go
Most mergers are built around a strategic vision. Perhaps one firm wants to strengthen its commercial offering. Another may want to grow its private client practice or develop a national Court of Protection team. Sometimes the objective is geographical expansion. In other cases, the deal is driven by succession planning.
Whatever the motivation, it is relatively uncommon for two firms to want every department, every file and every area of work. Increasingly, firms are taking the opportunity to reshape their business before a transaction completes. Rather than carrying legacy departments into a new organisation, they are asking the question, “does this practice area still fit where we’re going?” and the answer is not always yes.
The market is becoming more selective
Recent research into the personal injury sector illustrates this perfectly. Over 100 firms left the PI market in the past year alone, while larger claimant firms continued to report revenue growth through acquisitions, technology investment and a focus on higher-value work. These statistics don’t mean those firms have failed.
In many cases, they have simply reached the conclusion that continuing in personal injury no longer aligns with their long-term strategy.
We’re seeing similar conversations in conveyancing, volume litigation and other areas where compliance costs, recruitment challenges and technology investment have fundamentally changed the economics of practice. Growth isn’t always about adding another department. Instead, it may be about deciding which departments no longer belong.
A merger is more than a financial transaction
When firms discuss mergers, attention naturally focuses on valuation, structure and due diligence. Those are critical issues, but the practical challenges shouldn’t be underestimated.
Questions quickly arise around:
· ongoing client matters
· work in progress
· successor practice considerations
· professional indemnity implications
· staffing and supervision
· client communication
· conflicts of interest
If those issues aren’t addressed early, they can delay a transaction or create unnecessary risk after completion. Planning for the work that won’t be retained is therefore just as important as planning for the work that will.
Why firms are exiting practice areas before completion
One trend we are seeing more frequently is firms making strategic decisions before a merger completes. Rather than transferring every department into the new business, they choose to exit specific markets beforehand.
There are several reasons for this, such as:
· The acquiring firm may already have sufficient capability in that area.
· The work may not align with the long-term strategy of the merged business.
· It may be lower margin, require specialist infrastructure or carry regulatory exposure that neither party wishes to inherit.
Dealing with these issues in advance allows the merged firm to begin life with a clearer focus and a simpler operational structure.
How Recovery First can assist in the merger process
Recovery First works alongside corporate advisers, accountants, restructuring specialists and M&A consultants.
Rather than viewing unwanted work as a problem to be managed after completion, Recovery First enables firms to deal with it before the transaction takes place.
Through a panel of carefully selected purchasing firms, work in progress can be transferred in a structured, confidential and compliant way.
Clients continue to receive legal representation, the selling firm realises value from its work in progress and the acquiring business can focus on integrating the parts of the practice it actually wants.
Importantly, matters are allocated across multiple receiving firms rather than transferred wholesale to a single practice, helping manage capacity while supporting an orderly transition.
The process is designed to complement the work of corporate finance advisers and M&A specialists, rather than replace it.
If you would like to find out more about Recovery First’s process, please get in touch today via email at david.johnstone@recoveryfirst.co.uk, or sally.dunscombe@recoveryfirst.co.uk or call the office on 01357440140.