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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.

user iconJerome Doraisamy 01 June 2020 SME Law
Sam Coupland
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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.

“Most firms had excess capacity and this [has] clearly been exacerbated by the pandemic and it’s not going to correct any time soon. But you know, five years ago the appetite to acquire fees to grow your firm was pretty ripe, the natural growth wasnt happening. So, the firms were bolting on, they had excess capacity. If they could just get some more lawyers in, some more fees in, it would improve the bottom line. So, the appetite was certainly there for acquirers,” he explained.

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 theyre 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 pandemics 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 thats 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. Everyones going to be out marketing. People are going to try their best, but its 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. Ive 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 theyve done, theres been very little in the way of actively moving people out of the firm, but I suspect thats 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 dont 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 dont think theyre the opportunistic law firm acquirers that will say, well look, a firm is on the mat, lets go in and get them cheap. Its 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, theyll know that theyre not that attractive to a potential acquirer so theyd probably rather build themselves back up. And I think thats going to be the problem. Valuations are going to be very different down the track. Whats 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:

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