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Two former leaders of a UK “magic circle” law firm have founded a consultancy to advise on private capital investments into the legal sector, as record profits in the industry drive external interest in the firms.
Wim Dejonghe and David Morley, former managing partners at Allen & Overy — now A&O Shearman — launched Dejonghe & Morley on Monday and said they were working with several potential investors.
The venture is a sign of growing interest from private equity and family offices in law firms as investors look to capitalise on a sector that is highly profitable but is also having to contend with increasing competition and pressure to invest in technology.
Dejonghe and Morley predict more tie-ups between law firms and investment companies in the next 12 to 18 months.
“Firms have strategic choices to make. Before long I think every firm is going to find themselves competing with some kind of private equity model,” Morley told the Financial Times.
Private equity giants including CVC, Cinven and Permira are among those looking at investing in law firms, according to people with knowledge of the situation. The firms declined to comment.
DWF — one of the UK’s top 25 law firms by revenue — was taken private by Inflexion in 2023 in a £342mn deal, while investment firm Investcorp bought UK family law firm Stowe last year.
The interest in law firms comes after a number of private equity groups have done deals in the accounting sector, with Cinven taking a stake in Grant Thornton this year.
“The big trend in professional services is to consolidate, is to scale. You need a certain amount of scale to invest in people, to invest in technology, to invest in client service,” Morley said.
Dejonghe and Morley are planning to use their experience leading one of the world’s biggest law firms to help match private equity and family offices with law firms looking for outside investment.
Dejonghe was the architect of the merger between A&O and New York’s Shearman & Sterling last year.
An increase in law firms taking external investment would mark a cultural shift for the firms, which have long been run on a partnership model in which a group of the most senior lawyers take responsibility for the balance sheet and decision making.
While the UK opened up the market to non-lawyers over a decade ago, which also allowed firms to go public for the first time, there has been a lack of take up and a number of public failures.
RBG Holdings, a pioneer of the listed law firm model in the UK, delisted this year after it struggled to secure funding and contain management disputes.
The advent of artificial intelligence will probably spur more legal firms to seek outside investment, according to Dejonghe.
“At some point AI will change the business model,” he said. “If you don’t engage with the potential impact . . . and you just keep on working with leverage and hourly rates, I think you’ll ultimately lose out in the market.”
