PE lessons: investing in the law

New ways for private equity to invest in the UK legal sector are emerging as the market reaches “a point of maturity”, according to a recent seminar for potential investors hosted by Armstrong Transaction Services.

An audience of representatives from private equity houses met last month at the Commonwealth Club in London to discuss investment opportunities in the legal market.

An expert panel chaired by Armstrong’s Tom Raymond that included Connect2Law CEO and former Clyde & Co COO David Jabbari, Shakespeares CEO Paul Wilson and former Osborne Clarke COO Chris Bull discussed a range of topics including barriers to change in the profession, the investibility of firms and exit strategies.

Bull, now of professional services consultancy Kingsmead Square, argues that interest in the UK legal market has reached “a point of maturity” whereby legal services providers in certain market segments are attracting most interest among private equity houses circling the market.

“Private equity houses are struggling to see how an investment in a conventional full-service law firm partnership will work,” said Bull. “There’s more of an appetite around businesses that have a large volume of sustainable repeat work, a small partnership and a high ratio of staff, and that are – or are structured like – corporates.”

Bull added that another attractive route for private equity houses looking to invest in legal services could be a greenfield start-up operation.

“That would allow the investor to structure it in the way they prefer – almost certainly as a corporate – from day one, have control over it and hire in only the resources they need,” he explained.

A third related area of potential investment is what Bull describes as a “hidden secondary market”
of providers of services such as IT, know-how and outsourcing to law firms. 

“We’re going to see more investment in these types of vehicles,” he said.

In the past 18 months the UK has seen a string of private equity investments or acquisitions in the legal sector. Highlights include Dragons’ Den star James Caan’s cash injection into Midlands firm Knights, AIM-listed Quindell’s acquisition of Liverpool’s Silverbeck Rymer, private equity backing for North West insurance firm Keoghs from LDC and Duke Street acquiring a majority stake in Parabis.