Private Equity: Why the Focus is Moving Away from Smaller Law Firms

Private equity (PE) was one of the biggest talking points in the legal sector throughout 2025. Investors showed unprecedented interest in law firms, with a flurry of deals and countless conversations taking place behind the scenes. One report even suggested that 70% of the regional firms with revenues between £15m and £50m had been approached by potential investors.

However, that headline figure doesn’t tell the full story.

In reality, most firms weren’t being contacted directly by major private equity houses. Instead, many managing partners received approaches from deal brokers, intermediaries looking to match firms with investors. While some are reputable, others were simply cold-calling in the hope of striking lucky, often dangling eye-catching promises of huge returns.

This is part of the reason the market is now cooling. Last year, many partners were told they could expect valuations of eight to ten times EBITA (a common measure for profitability). But as serious negotiations progressed, those figures often turned out to be far less generous. The gap between expectation and reality has made some firms more cautious.

Private equity firms have become more selective because many regional practices are showing worrying trends.

Analysis of 35 firms in the £15m-£30m revenue bracket found mixed financial performance over the past five years.

From an investor’s perspective, this suggests that many of these firms are not ready-made success stories, but rather complex turnaround projects. As a result, private equity is now more likely to offer four or five times EBITDA rather than the eye-watering multiples seen previously.

Rather than focusing on smaller regional firms, investors are shifting their attention towards larger mid-market practices higher up the UK top 200. These firms tend to have stronger profitability, clearer growth potential, and more stable business models.

We may still see some “buy-and-build” strategies involving smaller firms, but the main action in 2026 is expected to be in solid, well-managed mid-market practices.

For future lawyers, this shift is significant. It suggests:

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation.

It is a measure of a company’s operating profit, how much money the business makes from its core activities before certain costs are taken into account.

Here’s what each part means:

Why is EBITDA used?

Private equity and investors often use EBITDA because it allows them to compare the underlying performance of different firms without being affected by their tax position, debt levels, or accounting treatment of assets.

Thank you for reading 😃