Personal injury reforms such as the referral fee ban have fuelled peak levels of law firm merger and acquisition activity, according to sector observers.
An August advertisement update from accountancy firm Armstrong Watson highlights 13 M&A opportunities.
Andy Poole, legal sector partner at Armstrong Watson, told the Gazette he was seeing more law firm M&As than ever before. Earlier this year Armstrong Watson was instructed in 16 different mergers at the same time.
The firm is currently engaged in nine.
Poole said: ‘A lot of the activity is driven by challenges in personal injury. There are a lot of pressures being put on PI firms because of recent changes including banning referral fees and the ability to recover success fees from losing parties. There are firms where the average income per case is lower than their acquisitions.’
Succession planning is another driver behind M&A activity, Poole noted.
‘There are a lot of partners looking towards retirement on the horizon. They may want to become part of a bigger firm with people who can replace them.’
Going through expectation management with firms seeking an acquirer, Poole noted two ambitions behind a desire to sell.
‘Quite often, very many people say they do not want to have to pay professional indemnity insurance run-off cover and they want their capital account money [money owed to partners when they retire] back.’
Uncertainty in the legal aid market has led to fewer criminal law practices consolidating than expected, Poole said.
Meanwhile, slow progress in introducing alternative business structures in Scotland has been cited as the reason for a series of acquisitions of Scottish law firms by firms in England and Wales, who have additional capital available to them.
The latest advertisements posted by Armstrong Watson this week include a London law firm with a guide price of £250,000, a Surrey property firm with a £1m turnover, and a ‘long-established and highly regarded’ firm with a longstanding client base of more than 360 active clients who provide repeat business.
A clinical negligence department of a mid-tier-sized firm, based in South Yorkshire, is seeking to buy clinical negligence files. A ‘prominent and highly successful’ Yorkshire practice wants to merge with or acquire law firms throughout Yorkshire and the north-west of England.
A ‘proactive and innovative’ Manchester-based commercial and PI firm is hoping to establish a presence in Leeds, seeking a bolt-on, merger or acquisition. It has already secured city centre premises.
Poole said the legal M&A market has probably reached a peak in terms of how many firms can merge at the same time. But, he added: ’I think that peak will continue at a similar level for time to come.’