Analyst predicts top firms will favour patient minority investors as PE valuations decline
A leading legal sector consultant has predicted a significant shift in the way major law firms approach external investment, suggesting that the next phase of funding will favour patient minority investors rather than traditional private equity buyers. Adil Taha of the consultancy Taha and Watmough argued that this emerging model could finally appeal to the top 50 firms, which have shown little appetite for private equity to date.
Speaking in the second part of an interview, Mr Taha said that while private equity interest in legal services was easy to understand, he questioned why some firms were selling stakes rather than strengthening their operations by bringing in specialist non-lawyer expertise. He noted that law firms offered scope for efficiency gains, but he maintained that not all investment models were suited to long-term professional practice.
Mr Taha forecast that the current private equity approach, defined by fast-paced buy and build acquisitions, would evolve rapidly over the next two years. He predicted that investors would increasingly take small, minority stakes and operate as long-term capital partners rather than seeking rapid returns. According to him, this approach would be more aligned with the strategic expectations of the largest firms and could attract new categories of investors, including Middle Eastern family offices, pension funds and sovereign wealth funds.
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At present, only one law firm – rradar – is known to have support from a sovereign wealth fund. The largest firms typically obtain finance through banks, but Mr Taha suggested that banks were poorly positioned to act as patient capital partners. He added that minority investors, particularly family offices, could create cross-pollination opportunities by driving legal work to the firm and enabling both sides to benefit from shared networks.
His comments followed the recent private equity investment in Greenwoods, whose chief executive told Legal Futures that delaying the decision any further could have been detrimental. For Mr Taha, this response reflected a sense of “FOMO” among partners concerned that the private equity opportunity might close. He cautioned against such fears and said private equity would remain active in the market. He argued that buy and build strategies still worked well for consumer-focused firms such as Stowe Family Law and Fletchers, where scale and specialisation aligned with investor expectations.
Conversely, he expressed doubts about the sustainability of private equity acquisitions involving full-service firms. He said that attempting to integrate multiple departments, cultures and operating models within a five-year window posed significant challenges. In his view, investors found it easier to generate margin improvements when a firm specialised in a single area.
Mr Taha also warned that some law firms continued to overvalue themselves, particularly where partner drawings extracted profits that private equity buyers would discount. He said deal multiples were cooling, with recent transactions typically completing at five to six times EBITDA, down from the higher levels seen earlier.