Ritchie: Strategic shift in the sector
A fifth of law firms are considering private equity investment as a route to growth and transformation, according to new research.
This is against the background of most expecting further consolidation to continue changing the shape of the market.
HSBC’s annual law firm strategy and investment report said that, with a fifth of firms now anticipating ‘significantly more’ merger and acquisition (M&A) activity in the next 12 months, 24% were more attracted to private equity, while a fifth had more appetite for litigation funding too.
This translated into 21% saying they were actually considering private equity to fund growth, and 20% litigation funding. But 74% were still also looking to their bank – particularly larger firms.
The research, involving a survey of more than 90 leaders of law firms ranging from £18m turnover to £1bn, was produced in association with Briefing.
A webinar held to launch the report yesterday highlighted that there was “a lot of dry powder [ie investment cash] looking for a home in high-quality businesses”, and private equity hoped to replicate its success in building platforms in accountancy and consultancy services.
The need for extra financial firepower was explained in part by respondents identifying peers with more tech-driven business models and – for firms in the £20m-£100 revenue band – M&A as the market developments which had the most potential to disrupt their own firms.
Respondents saw bolstering existing teams through strategic hires as the main route to growth (cited by 82%), followed by greater sector focus (59%), hires to enter new geographical areas or specialisms (58%), and buying law firms (43%).
The report also found that one in five firms were looking to sell tools or software developed in-house to clients or other law firms, while the same proportion were eyeing up diversifying into complementary professional services.
Firms planned to allocate an average of 6.5% of their annual revenue to technology initiatives into 2026, up from 6.1% in 2024.
When it came to artificial intelligence (AI), internal knowledge management, summarisation within workflows, production of legal work, and marketing/business development were the main areas likely to involve some form of generative AI in the next year.
In last year’s survey, the accuracy of AI was seen as the main barrier to its adoption, but that has fallen from 51% to 40%, with time to explore all the options and benefits now the biggest barrier. A third of firms were also unclear about the return of investment, up from a fifth last year.
Victoria Ritchie, head of professional services at HSBC, said: “The increasing appeal of private equity investment underscores a strategic shift in the legal sector.
“Firms are recognising the potential of external capital to fuel growth and innovation, allowing them to remain competitive in a rapidly changing market.”
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