Passmore: Capital has committed
Private equity allows law firms “to build for capital growth rather than cash distribution” and represents a “fundamental shift in how firms can compete”, the Law Firm Growth Summit heard yesterday.
Crispin Passmore told the Legal Futures event in London that when he left his role as an executive director of the Solicitors Regulation Authority in 2018 to launch his consulting practice in 2018, he identified regulatory reform, technology and client pressure as three forces reshaping the market.
“But I underplayed a fourth. Capital. In 2018, capital was circling. It was cautious. It hadn’t yet committed. The investment theses were being written, but the deals weren’t being done at scale.
“In 2026, capital has committed. And everything is accelerating. I speak with newly interested investment banks, venture capital, family offices, private equity, asset managers and sovereign wealth funds almost daily.
“And their reach is far and wide – England and Wales of course, but also the United States, Canada, Australia and increasingly Europe.”
In his keynote speech to the conference, Mr Passmore – founder of Passmore & Oliver Partners – said that investors saw legal markets in the UK and US that were “fragmented, under-managed, under-invested and historically insulated from competition.
“These are markets where the major participants have distributed their balance sheet to zero every year-end for decades, which means very limited long-term investment in technology, no patient capital for M&A, limited capacity to build something that outlasts the current financial year – markets where there are no national brands and where the largest law firm in the world is just one eighth the size of Deloitte or Accenture.”
Client demand was “enormous and largely unmet”, and even sophisticated businesses were trying to exert more control over legal spend “not because they need less law, but because they can’t afford more”.
Mr Passmore explained: “Investors see an opportunity: to bring capital, management discipline, and a longer-term perspective to firms that have been operating with one hand tied behind their backs.”
The private equity investment horizon, typically five years, was actually longer than that of the partnership model, given its focus on year-end profit distribution
This was “a fundamental shift in how firms can compete – for clients, for talent, and for the future”.
He predicted that the pace of change would accelerate. “The question for law firm leaders is no longer whether to engage with external capital – it is what your strategic response would be if your major competitor suddenly has a strong balance sheet, backed by a long-term investor.
“How, and when, and on what terms to engage with investors will become a key strategic driver for all firms. Waiting is itself a strategic choice.”
He described talent as “the defining competitive battleground”, going on: “The firms that can offer genuine equity participation will have a structural advantage in attracting and retaining the best people. Those that cannot, will find themselves losing rainmakers, losing associates, losing clients, and losing ground.
“The talent war is already intense. Capital will intensify it further. If you cannot offer a genuine share in the upside of the business to more and more of your people then you risk becoming a talent farm for those that will.”
He also foresaw the emergence of “genuinely global legal businesses with diversified ownership structures” and the major City law firms needed to act now to be part of this group.
Most importantly, Mr Passmore said, was that “the firms that thrive will be the ones that are clear about their strategic purpose”.
While not every firm needed external capital, they did need to understand their options.
This meant knowing their “enterprise value”. This was not profit per partner but what a sophisticated buyer would pay for their firm and why.
“Most law firm leaders cannot answer that question. Investors answer it before they walk into the room. You should too. It changes how you think about strategy, about M&A, about talent – about everything.”
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