Deals: Firms eyeing up acquisitions
The leaders of larger law firms are less keen to expand their businesses through mergers or by taking private equity investment – but acquisitions are more on their radar, research by HSBC has found.
Meanwhile, more than nine out of 10 are expecting revenue growth this financial year of 6% or more, with three out of 10 expecting it to be up to 15%.
At the same time, overall business confidence has gone
HSBC’s annual law firm strategy and investment report found that the most popular route to growth in this financial year was strategic lateral or team hires, followed by expansion into new sectors.
The proportion of law firm leaders saying they would “actively be pursuing or expanding” through mergers fell from 30% last year to 18%, and actively exploring private equity investment from 7% to 5%.
The proportion actively pursuing acquisitions, however, fell only slightly to 40%.
Bank debt increased in popularity as the top way of funding law firm growth, up by 14 percentage points this year to 88%, while private equity slumped from 21% to 11%. There was no change to the fifth of law firm leaders considering litigation funding as a way of achieving growth.
When it came to the most concerning organisational challenges for law firm management, 73% of leaders cited AI integration, with 54% saying cyber security and 43% client price pressures.
This was followed by talent attrition, remuneration models and financial performance.
HSBC gathered responses from over 100 senior strategic decision-makers in law firms with turnovers from £18m to £1bn for the report.
Despite their caution, 85% of leaders said they believed M&A activity would increase in the UK over the next 12 months.
Asked how their perception of private equity as a route to growth had changed in the past two years, the proportion describing it as “more attractive” fell from 20% to 5%, while those referring to it as “less attractive” increased from 10% to 17%. For most though, “the sense of opportunity PE presents for their firm has not changed”.
Other law firms with more technology-driven business models, along with clients handling more work in-house, were seen as the two major trends that had the most potential to disrupt respondents’ firms.
Seven in 10 leaders said their investment in technology had increased on the previous year, while almost two-thirds believed their investments since 2024 had delivered good value.
Asked, for the first time, whether AI had changed their firm’s approach to pricing in relation to the billable hour, 42% replied “not significantly”.
However, 28% said it had changed their approach “to an extent”, and a further 8% “significantly”.
Clients were calling most frequently for fixed fees, according to 68% of law firm leaders, but the proportion who said they were calling for the billable hour approach also increased this year, from 22% to 37%.
Victoria Ritchie, head of professional and business services at HSBC UK, commented: “The legal sector continues to demonstrate resilience and commercial ambition, but this year’s findings show that firms are navigating a more complex operating environment.
“The opportunity presented by AI is substantial, yet converting investment into secure, measurable and commercially valuable adoption will require strong leadership, collaboration and disciplined execution.”