Last week’s leader dwelt on a survey that found SME law firms are losing their appetite for mergers.
Buyouts? That’s a different story – if the money is right. Sizeable regional stalwarts are submitting to the lure of the lucre. This month alone they include Essex outfit Birkett Long, snapped up by arch-consolidator Knights, and Trethowans, swallowed by private equity.
Knights is a real outlier, without any sectoral equivalent. Since 2018, the listed group has snapped up over 20 practices. And the firms in its sights are getting bigger. So what is Knights’ end game? The group’s share price has rallied over recent months, but is down two-thirds in five years. Stockmarket analysts are underwhelmed.
Don’t be surprised if Knights also falls prey to PE, notwithstanding its inevitably expanding debt pile. It is demonstrating similar traits, after all – rationalising operations by cutting costs and people. There is a precedent here. Listed international firm DWF was taken private by PE two years ago, despite the challenging state of its balance sheet.
Next month it will be a decade since the first law firm (Gateley) listed on a UK stock exchange. But all that is very old news. PE is where the action is now, a market development not lost on two former Allen & Overy supremos. Wim Dejonghe and David Morley have set up their own advisory firm to help firms transition to PE ownership.
‘Before long, I think every firm is going to find themselves competing with some kind of private equity model,’ says Morley.
Quite possibly – but what is private equity’s own exit strategy? Clouds are gathering, notes law firm M&A specialist Jeff Zindani. He points me toward a blistering assessment of the current state of the PE sector by the seasoned billionaire investor Nassef Sawiris.
PE has had its best days, reckons Sawiris. Owners can’t exit in an environment of sluggish IPO markets, cautious buyers, falling valuations and rising investor pressure for returns. PE houses are over-leveraged and operationally weak.
If that is so, why should law escape those pressures? ‘The risk is that PE’s law firm investments become stranded,’ says Zindani. ‘Operationally flat, financially squeezed and ultimately unsellable.’
If so, what then?
No comments yet