Harris: PE taking a careful approach
Law firms backed by private equity (PE) have seen revenue growth of 30% in the last two years, twice the rate of the top 50, according to new research.
Accountants Hazlewoods said this suggested that the strategy of private equity firms to consolidate the sector was “delivering positive results”.
They analysed the accounts of 12 unnamed PE-backed firms, which showed that revenue rose from £598m to £780m, while the top 50 recorded a 15% rise, to £24.2bn.
A report in February from Acquira Professional Services showed that PE has invested nearly £1.2bn into law firms over the last five years, with a record £534m coming last year.
Hazlewoods said the legal sector’s “relatively stable revenue streams” had attracted PE, while its “relatively fragmented” nature provided plenty of opportunity to ‘buy and build’ bigger practices.
“At the same time the legal sector has become more accepting of PE investment. The sector’s need to invest more heavily in legal technology, especially in the growth area of AI, makes the capital that a PE fund can bring more attractive to law firms.
“Previously law firms had needed to fund their capital investment largely out of retained earnings.
“Access to PE funding also provides law firm founders with a potential retirement exit strategy, allowing them to sell their capital interest as part of the deal.”
Hazlewoods partner Andy Harris commented: “Not every PE investment in law is going work out but at the moment PE firms are delivering faster growth than the very biggest and most competitive firms in the UK.
“Rather than seeking to disrupt the industry PE is, by and large, taking a careful approach of adding and integrating bolt on acquisitions only after careful due diligence.
“Because of the number of deals that these PE backed firms are doing they could become the more favoured bidders for firms looking for bigger partners – having a track record of completing deals is very attractive to vendor law firms.”
In an interview with Legal Futures earlier this month, Will Evans, who leads the professional services team at Arrowpoint Advisory, the mid-market advisory arm of Rothschild & Co, said there was “an unprecedented number of investors looking at legal services”.
