It was another busy year in 2016 for law firm M&As, according to a release from Altman Weil, which tracks this activity. Eighty-five law firm combinations were announced in the U.S. in 2016, maintaining its pace since 2013, when U.S. law firm M&A activity dramatically accelerated coming out of the recession. Most combinations last year did not involve large firms—84% were acquisitions of small law firms with 20 lawyers or fewer.
Valuation tip: There are certain nuances involved in valuing a law firm. For example, one special consideration you need to ask about is the “origination credit” aspect of compensation plans. Origination credits are given to staff for bringing a client into the firm. There may be a formula that gives the originator a percentage of billed fees right off the top. This system works great for some firms, but other firms have trouble trying to figure out who originated what. When doing your initial interviews or requests for information, ask whether origination credits are used and what formula is used. Also ask how the plan is working out.
For more information, see What It's Worth: Law Firm Value, which provides key industry trends and data to help benchmark the value of a law firm.
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