Smaller law firms prioritise organic growth over M&A

The declining appetite for M&As

The LexisNexis Bellwether 2024 Lessons on law firm growth report survey findings reveal a waning appetite for growth through M&As, with only 10% of small and medium-sized firms considering this approach, down from 13% the previous year. This decline can be attributed to several factors, including cash constraints, weak market growth, and the lingering financial impact of the COVID-19 pandemic.

Professor Stephen Roper from Warwick Business School suggests that "interest rate uncertainty and weak market growth are also likely to be making firms less willing to take new risks."

Jon Walters, a founding partner at Northridge, a specialist law firm representing major names in the sports industry, also notes the considerable consolidation that has already taken place across the sector, potentially contributing to the reduced interest in acquisitions.

Organic growth: the preferred path

In contrast, organic growth has emerged as the favoured approach, with 63% of firms planning to achieve growth through their own means – a sharp rise from only 40% in the previous year.

This preference for organic growth is driven by a desire to avoid potential pitfalls associated with M&As, such as job losses, internal disputes, and costly and time-consuming negotiations, as highlighted by Anthony Earl from the Law Society's Small Firms Network Committee.

The benefits of organic growth

Organic growth offers several advantages for small law firms. It allows firms to maintain their autonomy and control over their operations, while fostering a sense of continuity and stability within the organisation. Additionally, organic growth enables firms to cultivate their unique culture and values, which can be a significant differentiator in attracting and retaining top talent.

Furthermore, organic growth often aligns more closely with the long-term vision and strategic objectives of a firm, as it allows for a gradual and controlled expansion tailored to the firm's specific needs and market opportunities.

The challenges of organic growth

However, organic growth is not without its challenges. Attracting new business remains a significant hurdle, with two-thirds (67%) of small law firms citing it as a major challenge over the next 12-18 months.

Word of mouth remains the most successful way to generate new work, with 69% of firms reporting success through this channel. To address this challenge, many firms are increasing their investment in marketing (49%) and business development (43%) to explore new lead generation opportunities.

Zoë Bloom, Co-founder and Partner at AFP Bloom, emphasises the importance of leveraging digital channels for niche areas of the law with fewer repeat clients. "Digital channels enable a constant drip feed that reminds people you exist," she says.

The role of technology in driving growth

Regardless of the growth strategy chosen, technology investment has emerged as a strategic priority for small law firms. More than a third (35%) of firms plan to increase their spending on technology in the next 12 to 18 months, while one-fifth (21%) have already done so. This emphasis on technology adoption is driven by the belief that it can increase revenues and support business growth, whether through organic expansion or post-merger integration.

Ben Giaretta, Partner and Head of Dispute Resolution at Fox Williams, highlights the importance of leveraging client and billing data through technology.

"Firms that purchase technology in a way that makes the best use of their data will fly in the next decade. Firms that fail to do this may end up buying costly systems to no advantage – and they will probably end up being left behind by competitors," he says.