SRA review uncovers serious risks in law firm acquisitions, urging better due diligence and integration
The Solicitors Regulation Authority (SRA) has issued a stark warning to law firms involved in acquisitions, urging them not to overlook due diligence and integration processes that are crucial for ensuring long-term success. A recent review by the SRA highlighted concerning patterns in some firms’ approaches, where failures to properly assess or manage acquisitions have led to significant problems, including client detriment and business instability.
The SRA’s thematic review, which focused on acquisition, accumulator, and consultant models, identified both good and bad practices. Among the most alarming findings was that inadequate due diligence and poorly planned integration could undermine even the most promising deals. In some cases, firms suffered severe repercussions, including client account shortages and operational failure, due to these critical oversights.
“Although many acquisitions ultimately succeed, failures are not uncommon,” the SRA explained. “When this happens, the consequences can be far-reaching, affecting clients and undermining trust in the profession. Understanding why these failures occur is vital for improving future practices and protecting consumers.”
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In particular, the SRA found that target firms often failed to conduct thorough due diligence, sometimes relying too heavily on pre-existing relationships with solicitors at the acquiring firm. This was particularly prevalent among firms that were exiting the profession, who perceived due diligence as the responsibility of the acquiring firm. Such complacency created the potential for disastrous outcomes, as the acquiring firm’s competence, systems, and capacity to act in the best interests of clients were not always scrutinised.
One acquiring firm revealed that they found acquisitions to be a more cost-effective strategy than traditional advertising to grow their client base. However, the review cautioned that the absence of clear acquisition criteria or a strategic plan could lead to long-term issues, particularly when firms acquired others in financial distress. These hasty decisions can overwhelm resources, leading to firm instability.
Moreover, the SRA noted that acquisitions often failed when firms did not integrate effectively, continuing to operate independently and incurring high costs. One individual blamed the firm’s lack of integration for its downfall, stating that the firm’s decision to focus purely on growth for the purpose of eventual sale meant that integration and long-term planning were not prioritised.
The SRA also raised concerns about the increasing use of fee-share consultant models, which, although growing in popularity, come with their own risks. Firms adopting this model must ensure that the fee split does not become unsustainable, as it could drain resources needed for business reinvestment and long-term infrastructure.
In conclusion, the SRA’s review emphasised that law firms must take full responsibility for their acquisitions, including conducting thorough due diligence and ensuring seamless integration. Without these crucial steps, firms risk damaging their reputation, harming clients, and ultimately jeopardising their survival in a competitive market.