Deals: New recruits a greater priority than mergers
The proportion of smaller law firms considering merger or acquisition as a growth strategy has halved in a year to just one in 20, with a shift in focus to organic growth, according to new research.
This is against a background of more lawyers describing their firm as ‘growing’ over the recent years – now 58% – the highest proportion since 2021. A further 30% said they were stable and only 5% ‘declining’.
Researchers from LexisNexis found that almost three-quarters of law firms (72%) planned to expand organically, up from 63% in 2024 and 40% in 2023.
Spending more on technology was the top priority for smaller law firms over the next 12-18 months, followed by hiring more lawyers and investing more in business development.
The LexisNexis 2025 Bellwether report, Marginal gains: The hidden levers of growth, was based on responses from 308 lawyers at smaller law firms in England and Wales – almost eight out of 10 with no more than 20 fee-earners.
Almost a quarter of law firms said they had hired new lawyers in the past year, with 17% saying they had spent more on technology and 16% on marketing.
Four out of ten law firms said that, as a result of generative artificial intelligence (GenAI), their firm would invest more in technology, up from a third in 2024.
In the latest report, 34% of lawyers said GenAI would make their firms more profitable and 29% enable them to reduce staff numbers. A further 22% said GenAI would enable them to “find new lines of business” and 16% adopt new forms of billing.
Researchers said client expectations on transparency and predictability in pricing were “rising sharply”, with half of lawyers saying the most rapid increase was in clients wanting clearer, more upfront fee structures.
The area where client expectations were rising fastest, however, remained quicker communication and response times, with eight out of 10 lawyers citing it.
Clients also wanted more accessibility and flexibility, use of technology and online tools, and value added services beyond legal advice.
Smaller law firms said the top challenges facing them were compliance and attracting new business. These were closely followed by keeping up with legal changes, retaining current clients and increased competition.
When it came to the main obstacles holding them back, 37% of firms cited the economic climate, 34% a lack of time for business development and 23% “fear of change”.
Tim Rayner, small law market lead at LexisNexis UK, commented: “Firms are seeking full control over their operations, signalling a careful rebalancing rather than a race to scale.
“This year’s findings show that small firms aren’t standing still. They’re moving forward with purpose. Growth, investment and innovation are happening, not through radical change, but through smart, sustainable decisions that protect profit margins and deepen client relationships.”
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