Over the past two years, private equity-backed law firms have seen their revenue grow at twice the rate of the broader legal industry, according to new research from Hazlewoods, Chartered Accountants and Business Advisers.

PE-backed firms achieved 30% revenue growth, compared to 15% by the UK’s Top 50 law firms, highlighting the impact of private equity’s consolidation strategy within the legal sector.

Hazlewoods attributes this faster growth to PE firms leveraging the legal sector’s stable income streams and fragmented structure—providing ample opportunity to buy, build, and scale practices into larger, more competitive entities.

The merger of smaller law firms can help extend their range of services and geographical reach allowing them to attract larger clients. Consolidation also allows law firms to deliver economies of scale through cutting their back-office costs as a percentage of fee income.

At the same time the legal sector has become more accepting of PE investment. The sector’s need to invest more heavily in legal technology, especially in the growth area of AI, makes the capital that a PE fund can bring more attractive to law firms. Previously law firms had needed to fund their capital investment largely out of retained earnings.

PE funds have invested more than £1.2 billion in UK law firms over the past five years**.

Access to PE funding also provides law firm founders with a potential retirement exit strategy, allowing them to sell their capital interest as part of the deal.

Andy Harris, Partner at Hazlewoods says: “Not every PE investment in law is going work out but at the moment PE firms are delivering faster growth than the very biggest and most competitive firms in the UK.”

“Rather than seeking to disrupt the industry PE is, by and large, taking a careful approach of adding and integrating bolt on acquisitions only after careful due diligence.”

“Because of the number of deals that these PE backed firms are doing they could become the more favoured bidders for firms looking for bigger partners – having a track record of completing deals is very attractive to vendor law firms.”

The changes in the law industry were made possible by the Legal Services Act 2007, which allowed non-law firms, including PE firms, to invest in the sector.