Why law firms may need a different kind of investor than private equity

Private equity remains one of the most talked-about topics in the legal industry. Yet despite the chatter, several participants in an industry roundtable suggested that the market is proving more complicated than many investors first expected.

Speaking on a special edition of The Non-Billable Podcast, investors, advisers and law firm leaders argued that while interest in legal remains strong, traditional private equity may not ultimately become the dominant source of external capital for most law firms.

Investors are becoming more selective

"The really good investors are still very interested in legal," said legal industry consultant Adil Taha. "What's changed is that they’re becoming far more selective about what they’re interested in"

The discussion featured Patrick Savage, vice president at Burford Capital, former Hill Dickinson managing partner Peter Jackson, Grant Thornton’s Oscar Dean, and Taha.

A key theme was that legal is proving more difficult to consolidate than sectors such as accounting and wealth management. While many investors initially viewed legal as the next major roll-up opportunity, panellists said the reality of law firm economics, partnership structures and client relationships has tempered some of the early enthusiasm around the sector.

"Investors are getting more sophisticated," said Savage. "They’re starting to understand this isn’t like accounting, but you can still get comfortable."

Several participants suggested that long-term capital providers may ultimately be better suited to larger firms than traditional buyout funds operating on five-year investment cycles.

"I think longer-term capital will become the dominant investor in the mid-market space and above," Taha said.

Jackson argued that control remains a major issue for many partnerships.

"Law firm partners, in my experience, are incredibly cautious, control freaks who like the ownership status," he said.

“It would be easier for the board to persuade their partners to take another investor, another partner with more capital to throw in, than it would be for them to give up their autonomy, their status and their control."

The exit question is still open

The panel also debated whether private equity activity has slowed, why many regional firms are struggling to attract investment, the growing importance of AI and talent investment, and what remains perhaps the industry's biggest unanswered question: exits.

"I think the exit thesis is one that isn't talked about enough," Savage said. "It's something that is yet to be proven."

Despite the caution, the discussion ended on an optimistic note for the broader external capital story. Asked whether there would be a top-20 UK law firm - ignoring DWF - backed by outside capital within the next five years, every panellist said yes.

Watch the full discussion here.