Experts predict wave of law firm mergers driven by digital assets

Experts say digital assets and AI will reshape motives and value in law firm mergers

Digital assets, data and repeatable, digitally enabled processes will play a central role in future law firm mergers and acquisitions, two leading advisers have predicted.

Writing for the Law Society’s leadership and management section, Zulon Begum, partner and professional services adviser at City law firm CM Murray, and Dr Richard Millard, a law firm adviser with the Cambridge Strategy Group, said law firms were likely at the “early stage” of a wave of mergers that could be larger than the one following the 2008 financial crisis.

They said that to compete with top-tier law firms, mid-sized firms would need to use technology assertively to drive down price and grow market share, which “inevitably” would have to involve mergers.

“If GenAI proves to be the transformational force many expect, then law firm merger motives, selection criteria and measures of success will all likely be rewritten,” they wrote. “Those that transition to new operating models early will open gaps that laggards struggle to bridge, turning the latter into acquisition candidates – often for their digital assets as much as, or more than, their human capital.”

They predicted that mergers and acquisitions in the legal sector would increasingly be motivated by the desire to aggregate data, standardise methods and combine knowledge into better tools and services.

“The most valuable firms will be those that own – and effectively use – diverse, well-governed data to deliver services,” they said. “If familiar patterns from other sectors hold, consolidation is likely.”

Ms Begum and Dr Millard wrote that firms with the best digital assets would be able to deliver more complex services at greater scale and lower cost. Human expertise would remain important, but firms that effectively use advanced, digitally enabled systems would outperform competitors that fail to invest.

Law firms offering premium and complex legal services would likely “retreat to quality”, they said, shrinking in headcount but maintaining revenue and profitability. For mid-tier firms, the need to compete would demand a proactive approach to technology and mergers.

“Inevitably, this will need to involve mergers. For the leading mid-tier firms, becoming expert at quick, sequential acquisitions will be crucial,” they said.

As value delivery increasingly “migrates from humans to algorithms and governed workflows”, they said law firm balance sheets would evolve. Historically, mergers have involved partnership combinations with no cash exchanged, but in a GenAI-driven market, firms could capitalise on digital assets that generate value independently.

“In a GenAI world, law firms can capitalise owned digital assets that create value independently. It follows that, in future law firm mergers, cash might very likely change hands – and a potentially substantial amount of it,” they said.

They also noted that private equity was “flooding” into the legal sector. The more sophisticated investors would back firms aiming to seize technology-driven opportunities rather than simply defend against disruption.

This, they said, implied a readiness “to self-disrupt to radically drive down unit cost, pursue market share aggressively and adopt genuine client-centricity; to implement service designs anchored to outcomes, reliability and transparency, with pricing to match.”

For law firm leaders, they wrote, “the decision is not whether to seek or accept PE investment, but to decipher whether the firm has a credible programme to create durable advantage and thus a valuable exit, without undermining partner expectations, client trust, professional standards, firm culture or long-term market positioning.”

Ms Begum and Dr Millard concluded that in a GenAI and private equity era, “scale that cannot learn, standardise and evidence quality is just weight.”

They said the firms that act now “through targeted acquisitions, alliances or full mergers” would gain advantages that others could not easily copy, while “the rest will have the future decided for them.”