Deal or No Deal? You Decide
in Advice, News

Deal or No Deal? You Decide

We have recently heard of quite a novel offer that has been made for the purchase of a law firm, and one that we had not come across before, so we thought we’d share it and see what our readers think!

Picture the firm for sale – it is a small sole practitioner based in Sussex with a few support staff who have been with the practice for many years, and the sole practitioner wants to retire. This particular firm have a niche specialism with regular instructions coming from across the country, because the sole practitioner is known as an expert in one particular field. He is keen for his clients to be supported going forwards, and does not wish for his work to end without somebody carrying it on. So, his key aims are to avoid run-off cover, make sure his staff have a job, get some benefit for his reputation in this particular field going forwards, possibly undertake some consultancy work in the future and to retire from needing to run a law firm and all the stress that goes with it.

A Generous Deal?

A law firm have offered him the following deal:

  • The seller becomes a consultant to their firm
  • The seller continues to pay his own staff and keep his own firm separate
  • The seller takes a percentage of all fees from his former firm going forwards (50% was mentioned)

So, just to clarify – this offer is for a law firm to take over another law firm, acquire their clients, benefit from the goodwill built up in that practice and to take a percentage of future profits. In return, the seller gets half of the income he used to and is still responsible for paying his staff himself, which means he remains their employer. I am guessing that the seller will be required to purchase PII run off cover in due course.

I am not sure what to say about this particular offer, because I have never come across anything quite like it before! Usually in deals where there is no cash price paid, there is some benefit to the seller – whether this is to take over the liabilities of the practice, assume successor practice status, enable the seller to continue working and/or to take a percentage split in the future in return for the liabilities being taken over by the buyer. There is always some benefit to the seller.

Eating Lots of Cake

In this particular deal, I cannot see any benefit to the seller at all, and I just wonder whether this is an example of a deal where the buyer has decided to not only have their cake, but also to eat lots of it at the same time! We often see deals that have involved Smith & Co just up the road from Jones & Co looking to acquire Jones & Co for nothing; deals involving local firms buying and selling rarely have a lot of benefit attached to them. There is a very old rule of thumb in the business brokerage world that if a local firm wanted to take you over then you would probably have heard about it already, not just when you get to the point of wanting to sell..