Survey of 120 law firms predicts shake-up in the legal sector with acquisitions of bolt-on teams and rise in consolidation
Survey of 120 law firms predicts shake-up in the legal sector with acquisitions of bolt-on teams and rise in consolidation
- 3 in 4 respondents expect a rise in mergers within the legal community
- 6 in 10 law firms with 100+ partners acquired bolt-on team in last year
- 1 in 5 respondents tried to complete M&A negotiations, but the deal failed
- 1 in 4 acquisitions involve team of more than 20 people
- 3 in 4 participants have held discussions on possible merger or acquisition
“Respondents to our survey are overwhelmingly predicting consolidation across the legal sector, since more than three quarters (76%) believe that merger activity within the profession will increase over the coming year.“
“This is a significant rise from last year when 60% expected an increase in consolidation. The question is, after Hogan & Hartson merges with Lovells, could there be others who follow suit?” commented Giles Murphy, director at Smith & Williamson, the accountancy and financial services group.
While firms of all sizes anticipate a rise in mergers, those from medium sized firms (those with 50-99 partners) appear to anticipate the highest level of mergers as 83% of the 35 respondents from this group expect an increase.
“Some commentators are predicting a shake-up across the legal sector in the short to medium term. The list of the top 100 law firms could start to take on a significantly different look,” continued Giles.
These are some of the key findings of the latest survey carried out by Smith & Williamson in which 121 law firms took part. Respondents included ten of the top 20 law firms and 59 from the UK’s Legal Top 100.
‘Bolt-ons’ increasing
“However, there is even greater interest in acquiring bolt-on teams from other firms, and it is the largest firms which have the greatest appetite and capacity to buy in-fill teams. While some deals have reached the headlines, our survey revealed that 6 in 10 of the largest law firms (with 100+ partners) acquired a team in the last year.”
Moreover, more than three in four of respondents acknowledged that they had either approached or been approached by another firm with a view to a possible merger or acquisition in the last year. [A table showing these statistics is below].
“This suggests that behind-the-scenes discussions regarding mergers and acquisitions are a regular feature in the legal community. Our survey found that the two areas of greatest potential difficulty in mergers are cultural differences and integration. Team bolt-ons avoid these issues and may achieve the upside that firms are looking for without carrying any additional baggage.”
Growing client base is key driver for M&As
“As some practices emerge from the recession in good shape, they may seek to take advantage of their relative strength. Growing the client base (mentioned by just over half of the respondents) was noted as the prime motivator of consolidation, whereas last year this was ranked in third position. So if the current client base can no longer be relied upon to provide growth in the current climate, then growing the base through merger or acquisition becomes an increasingly significant driver.”
Second to this is the desire to develop specific sectors and to merge with a firm which has complementary areas of activity, both ranked equal second in importance and mentioned by 45% of respondents
“Many firms have been shaken by the dramatic decline in profitability and are now emerging into a highly competitive market, so critical mass supported by a wider service offering may increasingly be favoured as a means to mitigate performance risk.”
“However, the greatest difficulty in a merger is that of bringing together two firms with a different culture and 82% of respondents cite this as a problem area. Integrating systems comes second with 58% of participants noting this as a potential difficulty.
Although it is the largest firms which clearly have the means to absorb bolt-ons, firms across the sector are acquiring from others since the average across the survey revealed that four in ten of the overall sample group acquired a team in the last year. While the majority of teams being acquired include five people or less, a surprising proportion are more substantial. A quarter of those firms who have acquired teams have taken on 20 or more individuals in this way.
Failed M&As
Inevitably, not all acquisition discussions come to fruition. Indeed, 1 in 5 of respondents admitted that they had tried to complete a deal but that they had been unsuccessful. When asked why talks had broken down, financial performance was most commonly quoted, followed by cultural issues and, thirdly, partner/member remuneration.
Statistics
What do you expect will happen to the level of merger activity in the legal sector over the next year?
2007 2008 2009
Increase 49% 60% 76%
Stay same 43% 29% 18%
Decrease 7% 10% 2%
Don’t know 1% 1% 4%
----- ----- ------
100% 100% 100%
Have you acquired a team (or teams) in the last year? (A team being two or more people from one source).
Yes – one team 35%
Two teams 1%
More than two teams 4%
No 60%
------
100%
Has your firm approached, or been approached by another with a view to a potential merger or acquisition of a team?
IN the last two years 14%
In the last year 76%
Not in the last two years 7%
Don’t know 3%
-----
100%
Background on the survey
Carried out during the autumn of 2009
- Participants were managing partners, FDs or similar
- 121 different law firms represented, of which 59 from the top 100
- Taking part were ten of the top 20 firms, and 31 of the top 50 firms
- 75% of firms structured as an LLP
Size of firm
21% of respondents from firms with100+ partners/members
28% “ “ 50 - 99 partners
27% “ “ 26 - 49 partners
22% “ “ 11 - 25 partners
2% “ “ 1 - 10 partners
For further information:
Giles Murphy, head of assurance and business services and a member of Smith & Williamson’s Professional Practices group Tel 020 7131 4369
Email Giles Murphy
Press queries:
Kate Harrison, tel 020 7131 4228 or Jess Koslow, tel 020 7131 4264
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing
Notes to editor
Smith & Williamson is an independent professional and financial services group employing around 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. It operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Salisbury, Southampton and Worcester. Nexia Smith & Williamson is the audit practice of Smith & Williamson and is an independent company.
Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International
Nexia Smith & Williamson Audit Limited
Registered to carry on audit work and regulated by the Institute of Chartered Accountants in England and Wales for a range of Investment business activities. A member of Nexia International
