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Oversupply of lawyers means firm mergers will continue amid COVID-19
There was a “huge appetite” for mergers pre-pandemic, and the age of coronavirus has likely accelerated that trend.
Jerome Doraisamy
Speaking recently on The Lawyers Weekly Show, FMRC director Sam Coupland – whose advisory firm has helped broker numerous mergers between law firms over the years – said the appetite for consolidation before COVID-19 was strong, largely inspired by an oversupply of lawyers relative to the volume of work on offer.
The challenge for firms looking to grow, Mr Coupland outlined, has always been finding a business willing to be acquired.
“It’s a matter of finding a firm where all the stars line up and that can be as simple as when a lease is due for renewal, partner retirements, areas of law, what’s hot, what isn’t. And, as the firm came to roll the dice and get into bed with someone else, or would I rather say it through themselves?” he said.
Had the age of coronavirus not arrived, the appetite for such consolidation would have continued, Mr Coupland mused.
“You only have to look at any of the data coming out of the law societies about the [ageing] population of lawyers. And so, to say that we’re in a succession tsunami would be overstating it, but there is a lot of transition of ownership from one generation to the next, clients from one generation to the next,” he said.
“Many smaller firms are goodwill practices, where the owners are paid to become owners of those firms or they feel like they’ve built up sufficient capital that is saleable, which [are] unlike the larger practices. So, the firms with saleable goodwill, will be looking to realise their asset in some way.
“If that isn’t able to be done internally, then they’re going to put it on the market and see if someone else will buy it. That trend towards more mergers or more acquisitions was heading up. And I suspect that the pandemic’s only going to speed that process.”
The oversupply of lawyers relative to the volume of work is now being exacerbated amid the pandemic, Mr Coupland posited, and as a result, any “forward-looking manager” will have to take meaningful action in the near future if they wish to thrive.
“This may be finding a marketing silver bullet that’s going to just deliver a rich vein of clients. It could be downsizing the firm to shape the staffing at the current level of work. It could be acquiring a practice to pick up files to better utilise current staff or finding a suitor to make all your problems go away. I think the first one, a marketing silver bullet, is just not going to happen. Firms are always looking for that. Everyone’s going to be out marketing. People are going to try their best, but it’s going to be more luck than management that brings that to bear,” he said.
“Downsizing the firm to meet the current level of work will happen. I’ve been talking to a number of my clients over the last few weeks about that very thing, and most of them being quite passive about it. So, any natural attrition they’ve done, there’s been very little in the way of actively moving people out of the firm, but I suspect that’s going to pick up pace. I have had, even in the last week, three firms get in touch with me to find out if I knew of any practices that they could park in.
“So, wanting to acquire thought they were in a pretty good position to do it, both financially and in terms of office space and management capacity. As such, I think the appetite to acquire is going to be high so that they don’t have to downsize staff.”
This all said, Mr Coupland doesn’t believe firms will, by and large, act as vultures preying on struggling practices.
“If a firm is really struggling, I don’t think they’re the opportunistic law firm acquirers that will say, well look, a firm is on the mat, let’s go in and get them cheap. It’s not like say the residential housing market or holiday homes they might be taking it so investors might grab them now,” he mused.
“If a firm is really struggling, they’ll know that they’re not that attractive to a potential acquirer so they’d probably rather build themselves back up. And I think that’s going to be the problem. Valuations are going to be very different down the track. What’s your firm worth now compared to what it was six months ago? It could be radically different.”
To listen to the full conversation with Sam Coupland, click below:
Jerome Doraisamy
Jerome Doraisamy is the editor of Lawyers Weekly. A former lawyer, he has worked at Momentum Media as a journalist on Lawyers Weekly since February 2018, and has served as editor since March 2022. He is also the host of all five shows under The Lawyers Weekly Podcast Network, and has overseen the brand's audio medium growth from 4,000 downloads per month to over 60,000 downloads per month, making The Lawyers Weekly Show the most popular industry-specific podcast in Australia. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of Minds Count.
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