The market for buying and selling law firms continues to grow.
Established firms and attorneys are looking for succession or sale due to attorney retirement, labor needs, and changing marketplace landscapes.
Next generation law firms are seeking growth through acquisition of key attorney brands, client bases, proven revenues, and geographic expansion. There is even room for new and recently licensed attorneys to buy law firms because retiring lawyers who want a plan may still want to work for several years so the opportunity for new lawyers to be mentored and trained by a seasoned lawyer is attractive. There are also more funding opportunities that make buying a firm a financial option for new lawyers.
Top Trends in 2022
Retirements Up. The increase in the number of lawyers deciding to retire will continue. The pandemic caused many Baby Boomers to rethink their plans providing an increase in inventory of available law firms.
Law firm purchases Increase during pandemic. Solo and small firm purchases continue to increase. The pandemic paused the buying and selling market for a few months in early 2020, but the marketplace has recovered, and sales continue to increase year-over-year.
Who’s buying? Mid-size and larger firms are looking to purchase solo and small firm practices. Recruiting and retaining top talent is a challenge. Small firms with retiring partners have clients to be served, along with paralegals and associates who have the clients’ trust.
Burnout is real. Big Law associates are burned out and looking for new opportunities. These associates have skills, mentoring, and expertise with sophisticated client matters. But perhaps they want to move closer to home, start a family, or control their destiny. Or maybe their hidden entrepreneurial spirit has kicked in. Big Law associates are exploring the path to ownership by purchasing a firm rather than building from the ground up.
Solos expanding ownership. Solo owners of small firms have decided to open the partnership opportunities. Lawyers who started their own firms and hired their lawyers as employees are thinking about their succession plans. They are looking to transition ownership internally and creating paths to partnership to allow for their eventual retirement.
Investment. While many partnerships continue to empty the coffers at year end, many are investing into the firm as a business. Leadership of small firms continues to demonstrate an increased rate of investment into the marketing, management, systems, and overall business model of their law firm.
Geographic relocation. Just like so many others over the last 24 months, attorneys are relocating, which opens more opportunities on both the selling and buying sides for law firm deals.
More funding available for law firm deals. Banks, private lenders, and others are becoming even more active and focused on providing funding for law firm buy-ins or acquisition and are working to craft better and more competitive lending platforms to do so.
Shorter time on the market. The length of time to sell a practice has shortened to an average of 18 months. To be on the safe side, if you are considering selling your law firm, you should contact a succession expert or law firm broker a few years in advance. But the typical solo or small firm practice stays on the market for an average of 18 months.
Lightning can strike twice. On average, it takes two offers before a firm deal closes.
But not for the reasons you’d think. The second offer is not necessarily better and often times is not as good as the first offer. But it can take awhile for the retiring lawyer to get serious about selling and to transition into Life after Law. The lesson here? Listen to the experts who are advising you on the sale of your practice.
Mergers are not always about the money. There is often a generational gap in law firm leadership and management. Many firms are turning to mergers to combine Boomer-led firms with Millennial-led firms to fill the void and create a strong continuation plan for both.
Download the Buyer’s & Seller’s 2022 Legal Trends Report prepared by the Law Practice Exchange to see a snapshot of the typical buyer and seller, top five practice areas sought by buyers, and typical financials of selling law firms. Visit Annual Report – Law Practice Exchange (thelawpracticeexchange.com).
Join us on Friday, October 7 at noon for a 90-minute virtual Buyers & Sellers Academy. We will hear from a law firm buyer who not only bought a firm but changed practice areas and moved to a new location for the opportunity. This event is not for CLE credit and is only available to Leading Law members. Visit Leading Law (lawyersmutualconsulting.com) to join the virtual community, then sign up for the event.
Camille Stell is the President of Lawyers Mutual Consulting & Services and co-author of Designing A Succession Plan For Your Law Practice: A Step-by-Step Guide for Preparing Your Firm for Maximum Value (available on Amazon). Continue this conversation by contacting Camille at firstname.lastname@example.org or 919.447.3354. Look for the next book in this series, “A Buyer’s Guide for Purchasing a Law Firm” to be published in late 2022.