Buying a solicitors firm is not like purchasing any other business of any kind. Dealing with solicitors is a unique experience and very often involves factors that some buyers simply fail to appreciate.
I should say that I am a non-practising solicitor myself and I can identify very often with the thoughts and responses of sellers of law firms when dealing with buyers.
The most obvious difference with a solicitors firm compared with other businesses is the fact that very often the business of the firm being sold comes via the seller, who will be a solicitor with 30 or 40 years experience who is looking to retire and get some value out of his or her business. The value of the business often is the name, the location, the current client base and any ongoing recurring fees that are coming into the firm. The latter is of course quite rare for solicitors firms, because most legal work is ad hoc and not ongoing, so clients will return but they may return after 20 years and not always show as being repeat business.
The one thing that buyers of law firms repeatedly fail to take into consideration is the pride and reputation of the seller and the two examples below will give you an idea as to why this is so important and partly explain why law firms do not sell for a particular value. Deals are usually concluded that are satisfactory to both the buyer and the seller.
Getting a Bargain
A small law firm recently went up for sale. It has two partners, turning over a miniscule amount of money (less than £50,000), and the two partners had decided to sell the practice or at least dispose of the practice and not bother renewing their PII premium because of the high cost being anticipated. One of the partners was happy to carry on for a bit, but the other one wanted to get out immediately.
We had a lot of enquiries about this firm even though the professional indemnity insurance recently expired and the firm were in their grace period. Buyers were aware that they were up against the clock in relation to this in order to keep the practice going, but we did not actually manage to achieve a sale of this business. Quite a few of the potential buyers got a little bit caught up with the issue of value and how they were going to make an offer and value the practice in order to make that offer. Quite a lot of them saw that the sellers were going to have to pay runoff cover in order to close it down, and were using that as leverage to not pay anything for the business and to simply take it over, whereas the sellers wanted a little bit of premium in order to do this.
Matters concluded with the sellers simply deciding they would pay the runoff cover, not bother carrying on with further negotiations with the potential buyers we had lined up for them, and simply closed the practice down and moved on.
The issue here that differentiates law firms from other types of businesses for sale is that the buyers thought they were negotiating for a particular value of a law firm and making offers on that basis. This is a very good approach to have when purchasing a business – valuing it, conducting due diligence and making an offer based on facts that present themselves.
Unfortunately in most law firm sales this simply is not the way the sales are achieved. Sales are achieved when the buyer makes an offer that gets past every obstacle presented to it, In this case the sellers has simply decided they couldn’t be done dealing with buyers who were trying to negotiate figures of around £10,000, and instead they would rather pay the runoff cover and exit the whole thing without having to continue with further negotiations. The buyers had completely failed to get to a point where they had attracted the seller with sufficient interest in order for them to bother making the sale.
Trusting the Buyer
Another reason solicitors are a bit different to other buyers. They tend not to want to sell to anyone. Ideal buyers tend to be other firms with a well established reputation. The sellers want to know who the buyer is; they want trust in the buyer that they’re going to continue with their work, and not destroy something that has been built up or to exploit their staff. Furthermore the firm will have their name all over it and is likely to remain there for some years to come. If the new owners then get arrested for being a dodgy dealer it looks bad still on the seller..
An institutional buyer of law firms who regularly gets in touch about a lot of new listings will often struggle to actually persuade solicitors firm to talk to them because there is a complete lack of trust as to what the institutional buyer’s intentions are. Sellers will ask questions from the outset about the intentions of the institutional buyer in relation to getting rid of their staff, changing things about and simply using their client database to push lots of aggressive sales of different services.
This particular buyer always seems surprised when the solicitors firms turn them down and does not wish to enter into negotiations. We are never surprised because we know the mindset of the seller and the fact that they simply don’t trust the intentions of the buyer. Developing trust between the parties, buying and selling a solicitors firm is of immense importance. Sellers want to see exactly who the buyer is, what they have in mind, they want to make sure the buyer is in a stable position and able to actually go ahead with the purchase before they agree to release details, and they also want to have trust that their negotiations are going to be in good faith.
These two factors really make solicitors firms stand out from other businesses when it comes to sales. Anyone thinking of buying a practice needs to be aware that a) the seller needs to retain their pride and that the price you pay may not be the price you think the practice should be valued at, and b) the seller will want to be able to trust the buyer from the outset.
In our experience deals occur when the parties get on with each other, serious money is discussed right from the outset, daft questions aren’t asked that simply act to wind up either party and the seller is actually serious about selling…
For a confidential discussion about your firm and a rough valuation, please give me (Jonathan Fagan) a ring on 01824780937. To view our lists of firms for sale please visit https://www.jonathanfagan.co.uk
In case it assists – here is a link to our online guide to selling a law firm.