Zulon Begum
Digital assets, data and “repeatable, digitally enabled processes” will play a central role in future law firm mergers and acquisitions, two leading advisers have predicted.
They said that to compete with the top law firms, mid-tier firms would need to “assertively use technology” to drive down price while growing market share, which “inevitably” would have to involve mergers.
They said the legal profession could be “at the early stage” of a wave of mergers – “potentially larger” than the one which followed the global financial crisis of 2008.
“If GenAI proves to be the transformational force many expect, then law firm merger motives, selection criteria and measures of success will all likely be rewritten.
“Those that transition to new operating models early will open gaps that laggards struggle to bridge, turning the latter into acquisition candidates – often for their digital assets as much as, or more than, their human capital.”
Writing for [1] the Law Society’s leadership and management section, Zulon Begum, partner and professional services adviser at City law firm CM Murray, and Dr Richard Millard, a law firm adviser based at the Cambridge Strategy Group, said: “Moving forward, M&As will increasingly be motivated by the desire to aggregate data, standardise methods and combine knowledge into better tools and services.
“The most valuable firms will be those that own – and effectively use – diverse, well-governed data to deliver services. If familiar patterns from other sectors hold, consolidation is likely.”
They went on: “Firms with the best digital assets can deliver more complex services at greater scale and lower cost. Human elements remain crucial, but firms that successfully employ cutting edge, digitally enabled systems outcompete those firms that fail to invest.”
Law firms delivering the most complex and premium of legal services will “likely ‘retreat to quality’ – shrinking in headcount, but not in revenue or profitability”.
To compete with them, mid-tier law firms would need to use technology “assertively” to drive down price while growing market share.
“Inevitably, this will need to involve mergers. For the leading mid-tier firms, becoming expert at quick, sequential acquisitions will be crucial.”
Dr Robert Millard
As value delivery “migrates from humans to algorithms and governed workflows”, law firm balance sheets would change.
The pair said law firm mergers had traditionally involved partnership combinations, with neither shares nor cash changing hands.
“In a GenAI world, law firms can capitalise owned digital assets that create value independently. It follows that, in future law firm mergers, cash might very likely change hands – and a potentially substantial amount of it.”
With private equity (PE) “flooding” into the sector, the “more sophisticated” PE houses would “back firms that intend to seize technology-driven opportunities, not merely defend against them”.
This implied “a willingness to self-disrupt – to radically drive down unit cost, pursue market share aggressively and adopt genuine client-centricity; to implement service designs anchored to outcomes, reliability and transparency, with pricing to match”.
For law firm leaders, “the decision is not whether to seek or accept PE investment, but to decipher whether the firm has a credible programme to create durable advantage and thus a valuable exit, without undermining partner expectations, client trust, professional standards, firm culture or long-term market positioning”.
Ms Begum and Dr Millard added: “In a GenAI and PE era, scale that cannot learn, standardise and evidence quality is just weight.
“The firms that act now, through targeted acquisitions, alliances or full mergers, will build advantages others cannot easily copy. The rest will have the future decided for them.”