I was interviewed recently by Law Firm Ambition about my views on the most common questions I see around selling a law firm. Here are my thoughts to the first five questions and the rest will be following soon. Next week we'll look at questions around working out value.
1. Under what circumstances might I look to sell my firm?
The classic (but somewhat flippant) answer to this question is that you do not wish to be part of it anymore. This could be because you are seeking other challenges, it is time to retire or you have no one appropriate to hand over to. In the worst cases it could be a distressed sale brought about by sudden changes in the market or in personnel.
However, this is not the only answer. Many are seeking to grow their firm, the opportunities for the staff and their clients, and to create greater coverage (of types of law or of geography).
There is (or can be) value in law firms, so picking the right time to go to market is crucial. Holding on for one more year can be the difference between achieving a sensible consideration and having to walk away empty-handed.
2. Can part of a law firm be sold?
Yes. You might sell particular matters/work in progress (WIP), or a separately identifiable part of the firm (eg a particular office or department).
Sales of WIP are surprisingly common, especially in consumer law markets such as PI. Sales of an office or department are harder to achieve, as ‘carving’ out one part of a whole can be challenging, but it is by no means impossible.
3. Can we sell a stake in the firm and continue the partnership?
Possibly, but not exactly.
If you are bringing a new partner into the partnership, there is the chance that their capital contribution pays for the exit of others. This succession model is very common for internal promotion, where it is more understood that the incomer is ‘paying’ for the retirement of the outgoer (however indirect or notional that payment may be).
More commonly, where a stake is sold in the firm it is to an outside funder (eg a private equity house, or in an initial public offering). That being the case, the firm would have to be an ABS and would be very likely to be a limited company. So in that sense the firm and the partnership do continue, but under a different legal structure (which has its own complications and issues).
4. Who could we sell the firm to?
Many people will look to their immediate competitors as potential acquirers, given the obvious synergies. Equally, some deliberately avoid those and go further afield as they seek to become part of larger firms with more depth and breadth to their services.
Other external investors include venture capital and private equity houses. There are also several consolidators and so-called ‘succession solutions’ who are actively seeking to acquire multiple firms in short timescales.
5. Are there any external investors willing to buy a law firm?
Yes, absolutely. There are several venture capital and private equity houses who have bought/are looking to buy law firms. There are also several firms who have floated on the stock market.
To be attractive to external investors, it is important to have a very clear business model and business plan. The investor needs to see how they will get the return on their investment in the short/medium term and what makes your firm unique. This does not have to be a niche area of the law or a bespoke IT package. It could be as simple as a having a particular geographic presence or a decent reputation/brand.
If you're planning to sell your law firm and have any questions, get in touch with Andy Poole
