Private equity and professional services

Ed Simpson at The Legal Director explains what PE interest means for client value and ethics

 

Merger activity in the UK’s professional services sector is slowing, but it’s not for a lack of ambition. Things are changing, and behind the scenes, many firms are hitting pause, waiting to see what private equity might bring to the table.

 

A City AM report revealed a 25% drop in law firm mergers this year, with senior partners stalling talks to explore more lucrative PE offers. Institute of Chartered Accountants in England and Wales (ICAEW) finds that 86% of mid‑tier firms now consider private equity among the top three macro trends likely to reshape the profession – up from 57% last year. Around a quarter have already secured PE investment, and a similar proportion are considering it in the next three years.

 

This isn’t just a sector-specific story. It’s one playing out across law, accountancy, consultancy, corporate intelligence, wealth management, and more.

 

The rules of engagement are changing. Strategic mergers, once driven by culture, capability, and client compatibility, are now being weighed against financial upside. For many founders and managing partners, that can be a tough equation to balance.

 

In the past, alignment with clients or complementary specialisms often took precedence. Now, a clean balance sheet and a sharp EBITDA multiple might win out. This goes beyond deal structure; it impacts the fundamental ethics and leadership of a firm, where those at the top are looking for an exit, rather than longevity.

 

Private equity investment changes the internal mechanics of a professional services firm. Where traditional partnerships focused on long-term relationships and shared responsibility, PE brings a sharper focus on return on investment. It’s less about being custodians of a profession and more about being accountable to shareholders or fund managers, like a traditional business, perhaps. But there’s a reason partner-led organisations are firms. This may be semantics, and a shift may sound subtle on paper, but it can profoundly alter decision-making in practice.

 

Fee structures, for example, are evolving fast. Value-based billing, subscription models, and aggressive cross-sell targets are becoming more common than the traditional billable hour. Service models are tightening, with partners under pressure to reduce non-billable time and focus on efficiency metrics, often delivered with AI. Staff incentives are also being reshaped. Bonuses linked to utilisation rates or sales performance can start to edge out softer measures like mentoring or team development and natural career progression.

 

It’s not inherently a bad thing. Growth is exciting, development crucial, and some PE-backed firms are becoming more agile, tech-driven, and commercially astute. But others are facing internal friction as short-term performance targets clash with long-standing professional values. What happens when delivering the best outcome for a client means walking away from a high-margin project? Or when investing in quality assurance puts pressure on quarterly returns?

 

These seemingly theoretical questions are becoming real flashpoints in boardrooms across the sector.

 

Trust, which really should be the foundation of professional services, can be harder to maintain when priorities shift. The same partner who once nurtured a client relationship over years may now be asked to monetise it in quarters. But once trust in a relationship is lost, it can be very difficult to regain.

 

Culture is shifting, too. Many professional services firms have been built on a sense of collective ownership and long-term stewardship with a team of partners. Under PE, there’s often a stronger sense of hierarchy and control. Decision-making may be quicker, but it can also be less inclusive. Founders who stay post-deal may find themselves at odds with new performance expectations or strategic directions. Others may cash out and leave, creating gaps in continuity that affect staff, clients, and firm identity.

 

In traditional partnership models, internal checks and balances often helped hold the line. Senior partners had a stake not just in profit, but in reputation. Career progression was typically earned through years of consistent contribution and values-led leadership. With external investors in the mix, some of those internal controls become less robust. Speed and scale become the drivers. That can work well when firms are aligned - but without a shared set of professional principles, tensions can grow.

 

And while PE backers are often smart, experienced, and supportive, their accountability is financial. They don’t answer to the Solicitors Regulation Authority, the ICAEW, or the Bar Standards Board. They answer to their LPs. That’s not inherently unethical - but it’s not the same as being governed by professional codes.

 

So the question becomes: who is looking out for the public interest? Who’s protecting professional independence in a model built on return multiples and exit horizons?

 

Right now, regulation is patchy. Many oversight bodies focus on individuals, not ownership structures. As PE continues to expand into law, accountancy, and advisory services, there’s a risk that the public interest could fall through the cracks. There’s no clear mechanism for assessing whether PE ownership aligns with professional obligations - and no shared framework for navigating the tensions when it doesn’t.

 

None of this is to say that PE investment is the enemy. Not at all. For some firms, it’s a route to growth, innovation, and stability. It can bring fresh thinking, better infrastructure, and a more commercial mindset. But it’s not a neutral transaction where money comes in and life continues as normal. It changes what gets prioritised - and who gets heard.

 

Professional services firms must be clear-eyed about those changes. They need to think not just about the deal, but about the direction. What kind of firm do they want to be? What kind of clients do they want to serve? And what compromises are they willing to make along the way?

 

Likewise, regulators and policymakers need to catch up. They need to understand how ownership is shifting, and what that means for accountability, standards, and public confidence. Because without a clear view of where power lies, it becomes harder to ensure that the professional services we all rely on, whether legal, financial, or advisory, continue to serve the public as well as the balance sheet.

 

Firms must not resist change, but they must look to manage it with integrity. PE has a role to play in the future of professional services. But so do trust, ethics, and long-term thinking. Because what the owners stand for is as important as who they are.

 

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Ed Simpson is CEO & Founder of The Legal Director

 

Main image courtesy of iStockPhoto.com and deepblue4you