Growth Is Not the Same as Value: A thought for Law Firm Leaders Heading into 2026

I have been having some fascinating conversations about growth, investment and purpose this week. It is early 2026 and for much of the past two years, the story told to a wide range of SME and Mid-tier managing partners has been simple and seductive: scale is inevitable, PE is circling, valuations are high, and now is the moment.

But currently that story is looking far less convincing.

Market Growth Does Not Equal Firm Value

The UK legal services market is, on paper, in rude health. According to PWCs Legal Market Report in Summer 2025, the market reached between £40bn and £52.3bn in 2024, with further growth forecast into 2029 of c5.1% per year.

Business and commercial work now accounts for more than half of total market value, reinforcing a long-term shift away from consumer dependency and towards higher-value advisory services.

The number of lawyers has increased by 14% and the number of law firms has dipped below 9,000 for the first time with the decline in sole practitioners is marked according to the latest figures from the SRA. The steady consolidation trend is being felt in the smaller firms across the country.

But market growth and firm value are not the same thing — and 2025 exposed the gap between the two.

Private equity dominated leadership conversations throughout 2025. Many regional firms report being “approached”, with some headlines suggesting as many as 70% of firms in the £15m–£50m revenue bracket have had PE interest.

Most of those conversations were not with PE houses at all, but with brokers, intermediaries and would-be consolidators, many of whom oversold both valuation multiples and certainty of outcome. The result has been predictable: expectations set at unachievable multiples of EBITDA colliding with offers closer to a normal range — or no offer at all.

This isn’t PE retrenching. It’s PE doing its job.

Why Many Mid-Tier Firms Are Harder Assets Than They Appear

When you look at the underlying data on many UK 101–200 firms, the caution makes sense. Revenue growth (12% according to the recent NatWest 2025 Legal Report) has often been accompanied by a decline in core profitability, sharply rising salary costs, and limited operational leverage. Equity is kept tight, but the engine underneath is running hotter for less return. From an investor’s perspective, many of these firms are not growth platforms — they will require significant support throughout the investment period.

PE has clocked this. And it has adjusted its own expectations accordingly.

2025 demonstrated that consolidation is not a blanket solution. Scale without operational discipline simply amplifies inefficiency. Buying growth without margin control only accelerates value leakage. There are other options for law firm leaders and many have come out of the last year with a better appreciation of the need to nurture and invest in their own businesses – take advantage of the advice and knowledge out in the market and act on it. 

PE interest is shifting up-market: towards genuinely profitable mid-market firms with repeatable client demand, pricing discipline, and leadership teams that understand integration and are willing to learn what and implement what PE needs to do its job well.

Choosing the Right Future

Looking ahead, 2026 will be less about “who can sell” and more about who has built something worth buying — or worth staying independent for.

The firms that will thrive next year will share a few common traits:

• Clarity of economic model: not just revenue growth, but sustainable margin, controlled salary inflation, and credible productivity metrics

• Intentional service mix: less reliance on commoditised work, more focus on advisory, complex, or recurring services where pricing power still exists

• Operational maturity: real investment in systems, data, and governance with tangible client and firm benefit

• Cultural readiness: whether PE-backed or not, firms need leadership teams with the capacity for growth, accountability and change

• A vision of a post deal world in which they understand the changes that will need to be made: brand building, value creating, open and exploring new ways of working

  
  

A more grown-up conversation

Coming out of 2025 what I am starting to see is better informed conversations: More realism and purpose. More managing partners asking not “what multiple could we get?” but “what would we actually need to fix for this to work?”

That is a healthier place for the profession to be – some leaders may even decide that, having done the work – they have something they want to stay independent for – and an engaged group of talented people who can see the way forward to take the firm into the next generation.

Private equity is not the answer for every firm. Independence is not a failure. And growth is not the same as progress. The firms that understand those distinctions — and act on them — will define the next phase of the UK legal market.