Sector experts say they expect merger interest to pick up again as law firms come down from the post-lockdown profits boom.

Research by chartered accountancy firm Hazlewoods found that the number of law firm mergers hit a 10-year low in 2021, as firms emerged strongly from the pandemic.

Solicitors Regulation Authority figures show 99 mergers last year – down from 107 in 2020 and from 278 in 2011.

Hazlewoods said the inactivity in the market was largely due to the pandemic, as firms initially focused on survival rather than selling and then saw business take off, particularly for those involved in corporate M&A and residential property.

All of which put any thoughts of joining forces with another firm on the backburner, as partners enjoyed bumper profits from their best financial results for years.

But analysts predict that this reluctance to consider mergers will end as the economy begins to slow down and firms seek to reduce their cost base.

Ian Johnson, associate partner at Hazlewoods, said the economic downturn and challenge of attracting new talent has caused more owners to look to sell their stakes. They will often, he suggested, seek out so-called ‘consolidator’ firms, which are backed by private equity investors.

Johnson said: ‘Over the last two years, law firm partners simply haven’t wanted to sell as they watched the profits roll in. Business has been booming and a lot of partners have been enjoying the profit distributions. As the economy slows and the boom for law firms ends, we expect to see more partners putting their firms up for sale.’

At the same time, the lull in dealmaking activity has left many acquisition targets on the market which may be primed for a takeover. Many firms led by partners seeking to retire will become available as those owners choose this time to exit the profession.

‘Consolidator firms looking to scale up or expand their geographic footprint through acquiring smaller firms will find there are a lot of opportunities to do so at the moment,’ added Johnson.

 

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