Valuing law firms is very different from valuing other service businesses because they depend on professional reputation and skills, referrals, a high relative intangible asset base, licenses, client relationships, and price sensitivity. In BVR’s special report, What It’s Worth: Law Firm Value, editor Ron Seigneur, managing partner with Seigneur Gustafson LLP, tackles nine trends that influence the success and reputation of professional services and should be taken into account when valuing law firms.
The internet and social media impact many aspects of how professional services are selected, delivered, and marketed. Connectivity between practitioners, their clients, and other advisors, as well as between the various staff members of the firm itself, drive many of the decisions on how a successful professional practice operates.
- Social media
More than 80% of law firms American Lawyer surveyed say they use social media as part of their marketing programs, with another 14% saying they plan to begin using social media within the next two years. In addition, attorneys increasingly use online sites, such as LinkedIn or Martindale Hubbell, to promote themselves and their services.
The majority of law students today are females and other traditionally underrepresented groups, including a growing number of international students.
- Corrosive influence of greed
Most professional firms are not immune from having to address the delicate balance between the pursuit of projects and clients and yield superior economic returns where choices might ultimately impact the integrity of the firm’s reputation in a negative fashion. Arthur Andersen, Myerson & Kuhn, and Dewey & LeBoeuf have all gone by the wayside due in part to questionable practices or the inability to evolve as times have changed.
- End of the practice monopoly
NoLo and DirectLaw are becoming analogous with what Open Table is to restaurants. NoLo offers a number of low-end solutions for legal needs, such as a will-maker program. DirectLaw is a virtual law firm platform that turns a law firm’s website into an interactive, online law practice. Increasingly, online legal platforms such as legalzoom, clearspire, and rocketlawyer are drawing business away from more traditional law firms.
- Global marketplace
Partly driven by the power of the internet, the world stage is expanding in terms of choices consumers have for professional services. One of the largest law firms today in terms of the number of attorneys is Dentons, which resulted from a merger between Dentons, a firm based in the United Kingdom, and Dacheng, which is based in China. The firm has 7,300 attorneys and 136 offices in 50 different countries.
- Outside ownership of law firms
In England, outside parties increasingly hold law firms. Slater and Gordon was the first publicly held law firm (went public May 21, 2007). Currently, 400 law firms in England have at least 25% ownership by nonlawyers.
- Free agency
More than ever, practitioners with a solid reputation and/or book of business are able to command special dispensation upon their movement between firms. Gone are the days of working for one firm for an entire career, as the transient nature of the profession accelerates. Increasingly, attorneys move around between firms. A lot of money is changing hands to get practitioners with a book of business to move from one firm to another.
- Demographic profile
In 2010, the median age for an attorney was 49 years old while the median age of the U.S. population was 37. This is important to keep in mind as you assess a practice in terms of looking at the demographic profile and age of the partners. A growing population of attorneys is nearing retirement, and law firms aren’t necessarily equipped to handle the buyout expectation of those attorneys.
With the number of law firm mergers and acquisitions reaching record levels over the past few years, and the impending mass retirement of baby-boomer attorneys who own law firms, a wealth of opportunities have been created. Learn more about the key considerations that go into a law firm's value and get critical advice on succession planning. Download the free excerpt of the special report >>