Private equity and the rise in interest in the Legal Services sector
With Alex Wyndham, Principal and Head of Business Services at Sun European Partners, LLP.
While the legal sector has not historically been a focus for private equity investment, we’re starting to see greater interest in the sector.
Dominated by small, partnership-led practices, the legal sector has finally begun to wake up to the opportunities presented by technological advances, changing client demand, a shift away from the traditional partnership model and greater adoption of remote working. Evolution in the sector was accelerated by the pandemic and presents opportunities for consolidation.
We wanted to shed some light on this, so we spoke with Alex Wyndham, Head of Business Services and Principal at Sun European Partners, LLP who led the acquisition of Fletchers Solicitors in October 2021.
Alex, did the pandemic change your thoughts on the legal sector?
The pandemic was – to quote David Sparkes, Principle Advisor and Founder of M&A advisers at Millbourn Ross – ‘the catalyst for a period of rapid change within the sector’, which left financially robust and well governed law firms in a strong position to take advantage of the opportunities for consolidation.
The pandemic and the forced shift to remote working, really highlighted the need for law firms to invest in legal technology to deliver better, faster, and more comprehensive services to clients.
But it’s not just to do with remote working. Workflow automation is a valuable tool for law firms’ productivity. With increased scrutiny on legal fees charged to clients through the billable hour system, some law firms have been turning to technology to help automate processes, but many others haven’t. That’s either because they don’t have the capital to do so, or they simply don’t realise the benefit. As private equity investors we can take a broader view of the market and help firms to adopt new technologies, both by providing the capital and also deploying our operational expertise.
And how does automation and the use of technology impact the legal services sector?
Automation and the use of technology can significantly reduce cost, safeguard revenue, optimise head count and ultimately reduce risk.
We’re already seeing increased flexibility, and a positive impact on the livelihood of lawyers and legal support staff at Fletchers as we’ve helped them to continue investment into this area.
It also brings more opportunities for remote work, better and more efficient connectivity, improved timekeeping and billing processes, and improved marketing and client communications.
When deployed correctly, adoption of new technology can remove existing barriers and have a positive impact on legal firms.
So, how can PE firms support the legal services sector?
In a highly fragmented market, and with more than 3,500 law firms in the UK alone, PE firms can support well positioned businesses to pursue growth by proactively targeting bolt-on acquisitions or potential merger partners.
And there has been a flurry of M&A activity. This year, we’ve already seen several mergers, including Eugene F Collins LLP merging with international law firm Addleshaw Goddard LLP as well as DMH Stallard, a leading southeast law firm merging with Griffith Smith.
Law firms can benefit enormously from fresh injections of capital from outside investors, supporting growth and driving innovation. With law firms adopting new technologies, we should see more efficient and effective legal services.
How is Sun European Partners operating in the legal services sector?
An affiliate of Sun European acquired Fletchers, a founder-owned, UK-based consumer law firm, specialising in claimant representation for personal injury and medical negligence cases in October last year.
We partnered with the well-regarded firm in October 2021 to help them accelerate their substantial historic growth through investment. Areas of focus included, improved digital marketing to reach new clients, implementing AI technology to support better decision making and improve key processes. Furthermore, through acquisitions we’re looking to add scale, legal resources and expand geographically in the UK.
Sun European has also supported Fletchers in strengthening their management team through bringing in a new CEO, as well as promoting a new CFO and CMO from within Fletchers, and hiring a new Head of M&A.
In May this year, Fletchers announced its first bolt-on acquisition, of Cycle SOS, the leading brand for cyclists in need of support from personal injury solicitors. Fletchers has been fighting on behalf of vulnerable road users for over 30 years and has represented tens of thousands of cyclists, making the acquisition of Cycle SOS a strong fit with its experience. It also sees synergies with its medical negligence brand ‘Patient Claim Line’ which should help support growth in Cycle SOS.
What attracted you to Fletchers as an investment and what makes them stand-out amongst their peers?
It’s a very nimble, modern law firm, open to embracing a new way of working which we believe creates fantastic growth opportunities. The team has fully embraced flexible working, recognising it as an opportunity to both enhance the proposition for existing colleagues and attract new talent needed for their growth.
Fletchers took the time to conduct an internal poll on flexible working, which suggested all age groups, functions and demographics felt they benefited from having the flexibility to fit work around their busy lives. Whether that’s caring for family members, supporting other unpaid roles they take on, or enabling a personal passion or hobby. Law firms’ most important asset are their people, and Fletchers has listened to what its lawyers and support staff want, which makes it an attractive employer and improves retention.
We’ve also supported more investment in AI and data analytics from Fletchers. This investment and new technology assists Fletchers in making crucial decisions when it comes to accepting medical negligence cases, just one example of how AI can improve a firm’s decision making.
Fletchers takes on many medical negligence cases and the cases are typically complex and challenging to prosecute. The business supplements the legal teams’ professional judgement with insight from AI tools. These AI tools compare data gathered in new cases with tens of thousands of previous examples to get a better estimate of the chances of success. As well as improved data, the new technology also frees up the lawyers’ time to focus on the unique factors affecting a medical negligence case, ultimately improving win rates for both clients and the business.
And finally, what is Sun European’s appetite for businesses in the legal services sector going forward?
There are vast opportunities for growth and development in the legal sector and as a PE firm we have interest in investing further in this sector.
Many law firms need to be dramatically modernised in order to grow within the technology focused society that we live in. While most industries have evolved with the times, many firms in the legal sector have not, remaining behind the curve. We see investment into the sector as an opportunity to accelerate value creation and GROWTH within these companies, that will in turn, help them to better meet clients’ needs.
About Fletchers
Fletchers is a leading UK-based consumer law firm, specialising in claimant representation for personal injury and medical negligence cases. With offices in Manchester and Southport, Fletchers puts the individual at the centre of all matters, ensuring consistently excellent customer service and outcomes. An affiliate of Sun European Partners, LLP acquired Fletchers in October 2021.
Website: https://www.fletcherssolicitors.co.uk
References
Legal futures;https://www.legalfutures.co.uk/latest-news/law-firm-leaders-expecting-market-consolidation-in-2021, https://www.legalfutures.co.uk/wp-content/uploads/MA-in-the-legal-sector.pdf, 08/2022