The country’s leading law firm broker, The Law Practice Exchange (TLPE), has released its 2022 Trends Report on Law Firm Buying and Selling. The market for buying and selling law firms remains strong and will likely continue to grow.
2022 Sees a Rise in Law Firm Buyers
After an initial cooling-off period when the pandemic struck in early 2020, the market for law firm transactions is once again growing. Traditionally, individuals were the primary buyers of small law firms. That trend has shifted to mid-sized and larger law firms.
“The tight job market has made it more difficult for mid-size and large firms to hire,” explained Tom Lenfestey, founder and lead broker for TLPE. “Many of these firms have looked to acquire smaller firms to grow their teams and effectively serve clients.” Another explanation is that larger firms see acquisition as a way to grow geographically or capitalize on remote work opportunities.
Boomers See Opportunity to Fund Retirement
The largest group of sellers continues to be lawyers ready to retire. Most law firm sellers are men over 65 years old or women over the age of 55. They are looking to retire and monetize their efforts in building a law firm.
Interestingly, Lenfestey sees women start their succession planning process earlier than men. “Female attorneys seem to plan for succession earlier. The average age of our female sellers is ten years younger than their male counterparts,” said Lenfestey. The quip that women are better planners seems to play out in the legal marketplace.
More Finance Opportunities On the Horizon
Lawyers no longer have to rely solely on personal savings to finance their deals. TLPE’s report confirms that more lawyers are looking to outside sources to fund their transactions.
“We are seeing more banks realize the potential for this market and are dedicating resources to financing law firm deals,” said Lenfestey.
Most banks have previously offered financing for law firm transactions. Now, however, banks are hiring loan officers to focus exclusively on law firm lending. One example comes from M&T Bank. They first began focusing on small law firms by offering Nota, a banking platform that provides business banking solutions for small law firms.
Nota CEO, Paul Garibian says that offering law firm financing is on the horizon. “There will only be more opportunity in this market as regulations continue to relax and law firms build businesses with transferable value. Nota continues to evaluate how to help our clients to scale their law practices via financial services products, including capital for buying law firms.”
More financing options will only fuel the future growth of what many see as an expanding market. “We only expect the market for buying and selling law firms to grow,” said Lenfestey. “If you’re a boomer ready to retire, reach out because there could be opportunities to sell your firm before you close the doors.”
Marketing Systems Lead to Higher Valuations
Law firms that invest in their marketing, technology, and people see the highest valuations. How much a law firm is worth obviously depends on the specific business model. But TLPE’s report gives some insight into how buyers value law firms. Small law firms are seeing a revenue multiple of anywhere from 45% to 95% of gross revenues.
Where a firm falls in that wide spectrum mostly depends on the firm’s business model. Lenfestey advises small law firm owners to focus on developing processes and procedures to ensure the firm is as efficient as possible. The more the firm can show that the firm’s success is not dependent on a single person, the better. With advanced planning, law firm owners can make moves now to maximize their firm’s values when they are ready to exit. The full 2022 Trends Report on Law Firm Buying gives more insights into top trends to watch, the profiles of typical buyers and sellers, and the most sought-after law firm practices.
Last updated November 17th, 2022