The legal services sector stands as the next untapped target for Private Equity consolidation
Following a wave of consolidation in the accountancy sector, private equity’s interest in professional services shows no signs of waning as it sets its sights on legal services.
Although not historically a focus for private equity, investors are increasingly turning to the relatively untapped potential of the legal services sector characterised by regulatory driven demand, critical and resilient business models and strong margin profiles available to well-run, efficient firms. With access to the right platform, the scale of the consolidation opportunity poses a prime opportunity for private equity investors in the coming years.
External investment into the legal services sector saw a step change in 2024, with growing interest manifesting itself in the form of several new private equity backed platforms in the year. The full-service legal sector saw strong levels of investment with Waterland investing in Manchester based Beyond Law, Aliter investing in counterpart BBS Law and Horizon establishing Adeptio and seeding it with the acquisition of midlands based FBC Manby Bowdler. Elsewhere, several investors turned to the niche specialist service providers in favour of the more traditional full-service models, with notable examples including CBPE’s investment in IP leader HGF, Investcorp’s secondary buy-out of family law firm Stowe and Vespa Capital partnering with wills and probate specialist Right Legal.
Overall, M&A activity in the sector has grown materially in 2024, with the number of deals in 2024 increasing by almost 50% from the previous year. For private equity backed platforms and larger independents, the ability to acquire smaller scale targets to both bolster existing practice areas and add incremental capabilities is now a well-trodden path and one that many firms are looking to in 2025. With smaller, less operationally robust independents facing mounting pressures from succession issues, talent shortages, and shrinking margins, further consolidation is inevitable.
Looking ahead, private equity’s influence in legal services is only set to deepen albeit with an increasing focus on identifying those firms that are truly differentiated. While niche providers like IP and patent law specialists continue to attract strong interest as a result of this dynamic, forward-thinking traditional full-service firms with an “operational edge” now have a unique opportunity to differentiate themselves.
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