M&A and the Irish legal sector: Key considerations for a merger

12 September 2017

There have been very few significant mergers in the Irish Legal Sector over the last five years. Most of the mergers have been between smaller firms to deal with succession issues and/or to improve scale in a particular market place.


Firms that have considered merging have stated that their primary reasons for considering such a transaction are to increase their scale of operations and/or to provide a more diversified range of services.

Top five M&A tips for law firms

The key points for consideration when considering a merger are:

  1. First - Get your house in order; Ensure turnover and profitability are on an upward curve if at all possible. Ensure your firm is operating to the maximum efficiency with  an appropriate cost base.
  2. Does the culture fit; Ensure the firm(s) you are seeking to merge with have a similar culture.  Firms come across partners from other firms in their work.  They get to know the culture of firms they deal with and the partners therein. This helps to target suitable firms for merger negotiations. 
  3. Complementary business; Do your service lines and client bases complement each other – Investigate if there are opportunities to grow revenues from both sets of clients through cross selling of your merged service offering
  4. Timing is everything; Do not wait to think about mergers too late.  Make sure that you enter talks with potential firms at least 5 years before you wish to retire in order to be able to assist in the transfer of the client base and get the best outcome for both firms.
  5. Get help; It’s hard to see the wood from the trees and an experienced external advisor can help identify target merger opportunities, make approaches in confidence and weed out tyre kickers without wasting your time

Impact of Brexit – opportunity or threat?

In last year’s Smith & Williamson Irish law firm survey, the vast majority of respondents expected more UK firms to open offices or merge with Irish firms as a result of Brexit.  There has been a significant surge in the number of UK lawyers registering with the Law Society since the Brexit vote.

UK law firms especially those specialising in financial services and intellectual property areas have already been evident in the marketplace. Pinsents for example, have stated publicly they are in the preliminary stages of examining suitable options for them in Ireland as they already have a presence in Northern Ireland having joined up with a local firm there.  

It is worth noting that UK law firms setting up greenfield offices in Dublin post Brexit will be seeking to recruit talented partners or teams and it is inevitable that more lateral hires will result.

The future and new business models – LLP’s

The Partnership business model has long been acknowledged by law firms to restrict their ability to merge with or acquire another firm. The Legal Services Regulation Act allowed for the introduction of Limited Liability Partnerships (LLPs).  LLPs will require authorisation and registration through the new Legal Services Authority.  Last year’s Smith & Williamson law firm survey results show that two in three of the firms surveyed are contemplating adopting this business model and most of these in the shorter term.

It is our view that the introduction of LLPs will increase merger and acquisition activity in the legal sector over time.  There has been significant M&A activity prevalent in the UK market  where the LLP business model is widely adopted and has been available for many years.

 

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