Private eye

In the short history of external law firm ownership, attention surrounding the legal services market from private equity (PE) investors has never been more pronounced. In this article, we explore this history and examine why PE investment has become so popular in recent years.

What types of investment are really happening? 

The two main PE trends in law firms are:

• Funding: litigation funding or provision of capital / finance to the law firm.
• Ownership: partial or full ownership of the law firm. 

As an example of the former, NorthWall Capital’s support of the global environmental claims firm Pogust Goodhead between 2021 and 2023 led to a €178m capital investment over two years, before another investor paid to secure its exit. Fabian Chrobog, founder and chief investment officer of NorthWall Capital, commented on the company’s website: “Our highly successful partnership with Pogust Goodhead is illustrative of our investment approach at NorthWall. We look to support high-quality counterparties by structuring and executing scalable capital solutions, which also provide us with the opportunity to generate attractive, uncorrelated returns for our investors and partners.” This approach appears to have achieved significant upside within a relatively short period, and in this case NorthWall Capital was able to exit having helped attract a larger replacement funder. 

The second type of investment – ownership – is exemplified by the deal involving FBC Manby Bowdler (FBC) and Horizon Capital. The chief executive at FBC, Neil Lloyd, told Legal Futures he wasn’t keen on the “small bolt-on deals” favoured by rival private equity-owned group Lawfront and was instead looking at law firms with turnovers of up to £10m.

The model of acquiring partial or full ownership of a law firm, then, varies, dependent on the preferred investment options of the PE investor involved.  

How did we get here? 

The concept of externally owned firms was first introduced by the Legal Services Act (LSA) in 2007. Four years earlier, Sir David Clementi had been appointed to carry out an independent review of the regulatory framework for legal services in England and Wales. His terms of reference were:

• “To consider what regulatory framework would best promote competition, innovation and the public and consumer interest in an efficient, effective and independent legal sector.”
• “To recommend a framework which will be independent in representing the public and consumer interest, comprehensive, accountable, consistent, flexible, transparent, and no more restrictive or burdensome than is clearly justified.”

In December 2004, Clementi’s Review of Regulation of Legal Services in England and Wales: Final Report was published, recommending, among other things, that outside ownership of legal practices be more widely permitted. It was from this report that the objectives of the LSA would be drawn. 

The obvious aim of the LSA was to liberalise the legal services market and promote competition by permitting non-lawyer ownership in law firms. However, it wasn’t until 2011 that the Solicitors Regulation Authority began to license alternative business structures (ABSs) – that is, firms with either full or partial non-lawyer ownership. (Readers may recall the generic term ‘Tesco law’ being used at this time to exemplify the radically changing legal sector.) 

The Co-operative group, the AA, Saga and other national brands entered the market, as did several PE investors, particularly in the more easily commoditised segments of personal injury and conveyancing. Duke Street’s investment in Parabis Group was an early significant failure after ABSs were introduced. By contrast, the Co-op announced year-on-year revenue up almost a quarter (24%), to £84m, and increased underlying operating profit (at £27m in April 2025). 

Why investment now looks different

Following the licensing of the ABS model in 2011, some ventures failed, arguably in part due to investors not fully understanding the changing market dynamics where they were investing – for example, in personal injury, where the introduction of the Legal Aid, Sentencing and Punishment of Offenders Act in April 2013 radically changed that market and the profits available. 

Additionally, these models were not sufficiently diverse in terms of legal services to withstand significant changes in the market. The list of high-profile failed investments and the perceived complexities of investing in a non-corporate ownership and leadership model were off-putting for some PE investors, and few investments of note were made leading up to the advent of the pandemic in 2020. Despite initial concerns about the impact this would have on the legal sector, COVID-19 forced many firms to implement new ways of working and technology – which they had previously delayed adopting – to improve the management of their business. 

This, along with the sustained demand for legal services in 2020 to 2022, meant many law firms came out of the pandemic more resistant. Consequently, the sector’s performance, at least financially speaking, indexed well against other sectors, and PE investments in law firms skyrocketed as a result.

Why are law firms of interest to PE investors now?

More recently, the legal sector’s financial performance in a challenging economic climate has piqued the interest of PE investors, especially as the underlying market dynamics are favourable for investment, including a highly fragmented sector and opportunities for consolidation. In other professions – eye care, dentistry, veterinary medicine and accountancy – consolidation has already led to successful PE investments. This has arguably emboldened PE investors looking at legal services. 

Much of the recent interest seems to be due to the herd instinct among PE firms: where one goes, others will follow. There have been an increasing number of what appear to be successful partial- or full-ownership investments, although there are still only a limited number of successful PE exits, such as the Livingbridge sale of Stowe Family Law to Investcorp.

An example of the buy-and-build-by-acquiring-other-firms investment strategy is Lawfront, which has targeted leading law firms in specific geographic areas. The investor has developed a central function, bringing together skills and experience that, when blended with legal sector know-how, support each of the firms they acquire to achieve significant growth.

It is clear that an increasing number of PE houses are following the Lawfront model, seeking regional heavyweights to become the dominant provider of quality legal services and an employer of choice in their area. The growth appears to be coming from new and existing talent; the use of technology and artificial intelligence (AI) tools to deliver a more efficient customer service; additional resources to help achieve organic growth; and merger and acquisitions expertise.

When to look at PE investment

There are several push factors involved for firms looking at PE. The biggest of these is succession, with younger partners no longer having the appetite to provide equity. We know of one PE-backed investment where the current equity partners wanted to leave 20% of the firm available to the junior partners after investment so that they could buy in and be part of the future. However, none of those junior partners took up the offer within the timeframe to do so. The era of junior equity partners is not over, but the pool of prospective partners is smaller than in previous generations, despite the increased number of solicitors holding a practising certificate. 

Another major push factor is recruitment, where competition has dramatically increased. Smaller firms find it hard to attract top-quality candidates, and often risk losing their own staff to larger, better-financed firms that, with PE funding, are able to pay more and offer increased training and development opportunities. 

Regulation and compliance are increasing burdens on all firms, too, but the rise of AI and growing IT costs in particular are creating an appetite for PE. Selling some or all of the firm to pay for this investment is an option that simply wasn’t available only a couple of years ago.

Going to the market

We recently heard about a firm that sold a minority stake to a PE house. The secret to the firm’s success was putting in the groundwork first, with a strong C-suite in place, demonstrable growth over a number of years and an easily understood vision for the future. They then went to the market with this package rather than waiting for a PE investor to approach them. 

Despite the increased interest, PE investors are not experts in the UK legal market, so they need to be led to understand that law firms are not like vets or even accountants, and they cannot just be amalgamated and costs stripped out for profit. In the matter referenced above, the firm had an easily understood business plan to double in size, via acquisition, within 24 months, and then double again within 48 months, with clear targets so that the funder could see where the profit growth would come from. 

The firm’s adviser is currently working on two other potential PE transactions that are following the same formula.

PE is not always the answer

In our experience, the recurring theme in aborted PE deals is that the PE house did not fully understand the firm’s client base. Meanwhile, the firm’s management were attracted by the money, but did not have a plan that was investable. Such cases are a lucky escape for all parties involved.    

The potential market for initial investment is small and getting smaller as target firms are acquired. There may be less than 75 firms that have the right credentials to be the first investment, and then maybe around 200–300 others that would be attractive as subsequent investments. With at least 12 PE houses (that we know of) actively searching the market, it is not fanciful to suggest that over the next three years there will be significant consolidation and an influx of capital into UK legal services. As the number of targets falls, prices will rise, and we expect the current multiple of seven to eight earnings before interest, taxes, depreciation and amortisation (EBITDA) to peak at around 10–12 for the initial firm, with a multiple of five to six EBITDA for subsequent investments. 

Choosing the right investor 

It could be argued that in the new Trump-based reality, with fluctuations in exchange rates and potential US investment sentiment, a UK law firm might be better advised to choose a UK- or European-backed fund rather than a US one to eliminate any danger of being left at the altar – or even worse, to have plans changed once the investment has been made.