The conditions that fuelled private equity’s interest in law firms are in retreat. Global private capital markets are contending with rising debt burdens, narrowing exit routes and a hardening investor view of risk — a backdrop that law firm economics would do little to improve. The £50m+ firms that private equity was said to be flirting with, meanwhile, have refused to sacrifice autonomy (or equity) to external investors. The opportune moment for a watershed PE deal to replicate that of DWF and Inflexion has passed.
DWF’s £342m take-private by Inflexion in October 2023 was heralded as the deal with the potential to open the floodgates. It remains an outlier at the top of the UK legal market. More than two years on, the realities of leveraged ownership are becoming clearer for DWF.
The firm’s four-and-a-half years as a listed entity were central to its decision to go private. That period was marked by the Covid pandemic, Russia’s war in Ukraine triggering unrelenting market instability, which unsettled valuations and increased volatility. Share price performance did not align with operational results, while shareholder expectations and reporting obligations exerted structural pressure on management decision-making.
Speaking to The Lawyer in March last year, then-CEO Nigel Knowles reflected that profits had tripled between 2020 and 2022, yet the share price had fallen from 131p to 50p. Performance and valuation had diverged. His successor, Matthew Doughty, told the Non-Billable podcast this week that liquidity in the public markets has “probably eroded further” since DWF’s exit.
For DWF, Inflexion offered stability at a particular moment, providing both an exit from the volatility of the public markets and the capital to pursue a more ambitious growth strategy. But it did so using the mechanics typical of leveraged buy-outs.
The 2025 accounts for Aquila TopCo Ltd — Inflexion’s acquisition vehicle — show £867m in liabilities, including £300.6m in bank borrowings, £221.7m in loan notes and £53.3m in preference shares owed to former DWF shareholders. The loan notes and preference shares accrue interest at 12% per annum, compounded quarterly, with interest rolled up rather than paid in cash. Sums like this would give your average managing partner nightmares.
Nevertheless, as many corporate lawyers will tell you, it is also standard in private equity structuring. Debt is layered into the acquisition vehicle, and returns are driven not only by operational improvement but also by leverage.
The cash profile illustrates the sensitivity. Finance charges of £69.3m were accrued in 2024/25, yet only £21.3m was paid in cash. Against adjusted EBITDA of £70.8m and £22.3m of cash on hand, the margin is narrow.
Former DWF shareholders who accepted preference shares will be anticipating a return on exit, but rising leverage could dampen their prospects. With both instruments accruing interest at 12% per annum, compounded quarterly, and interest rolling rather than being settled in cash, the combined loan notes and preference shares alone could approach £495–500m by 2030, before bank debt is considered. Any buyer will want to know that the underlying business performance justifies the eventual price tag. It places the onus on DWF to accelerate the growth trajectory.
None of this is a criticism of the transaction. It is simply what leveraged private equity in professional services looks like.
The environment in which the deal was struck has shifted. Borrowing costs are higher. Exit markets are more selective. Capital is concentrating in sectors with tangible assets, scalable technology or defensible intellectual property. Partnerships, with their elongated cash cycles and partner-dependent profit streams, sit further from that allocation logic. For many investors, law has become a niche within a niche within a niche investment.
Meanwhile, DWF’s LLP peers have emerged from the post-COVID cash surge with greater operational discipline. The current generation of managing partners came of age during the pandemic, at a time when competitive lines were being redrawn. Recent turnover growth suggests expansion is being sustained under tighter liquidity constraints.
Headcount growth has been a hallmark of the 2020s. According to The Lawyer UK 200, Top 100 firms have increased lawyer headcount by 22% since 2021, with total staff numbers up 18% to 178,000. In the Top 50, Clyde & Co has grown headcount by 43% to 4,961, Freeths from 520 to 1,015, and TLT by 67% to 1,577.
But growth carries a cost. Even where revenue expansion has been strong, such as TLT’s 70% revenue growth over five years to £187m, the wage bill is rising faster. At Pinsent Masons, staff costs have increased by 75% since 2021 to £239m, while revenue has grown by 35% to £536m. Salary costs now represent 44.5% of revenue, up from 35% in 2021. This illustrates the tension inherent in scaling a partnership.
There are exceptions. Eversheds Sutherland is already operating at scale; its International LLP wage bill contracted by 3% between 2021, while revenue has risen 22.1%. Staff costs have fallen from 42.5% to 33.7% of revenue, contributing to a 27% increase in net profit to £270m. Financial discipline can yield results. But for many firms, growth requires liquidity before it generates it.
An examination of Companies House filings for the 20 Top 50 firms (outside the Top 10) illustrates the scale of the cash cycle. Between 40% and 60% of annual revenue is tied up in working capital. Trade debtors alone often account for 25–40% of turnover, and in several cases it takes 140 days or more to convert fees into cash.
Insurance-focused practices are particularly exposed, where long-tail panel arrangements push debtor days towards the upper end of the range. In some instances, billing cycles approach 200 days.
The LLP model is designed to operate within this reality. Cash is continuously recycled rather than accumulated. Yet as payroll and partner drawings rise, the margin for error narrows.
Across our group of firms, current creditors due within one year frequently account for between 20% and 40% of annual revenue. These levels are not abnormal; they reflect the scale of cash that must move through a firm annually to meet tax, payroll and supplier commitments.
What has changed is the buffer. Cash as a percentage of revenue has declined at several firms. When cash is measured against short-term creditors, net liquidity is negative across much of the sample. Firms are more reliant on disciplined working capital management than they were in 2021.
Partner capital has not risen to match that capital intensity. Instead, attitudes towards debt have evolved. Several firms have increased borrowings by more than 50% since 2021; many of those same firms are simultaneously growing headcount and expanding geographically at pace.
Debt is being used as working capital support. The lender market has broadened, and facilities can be structured without transferring ownership or voting control. For equity partners who have been raised to value having skin in the game throughout their careers, that distinction matters.
For those equity partners, private equity is the least attractive option among several sources of capital. The PE model introduces external governance and time-bound exit pressures into businesses built around long-term partner relationships. The structural mismatch is fundamental.
Private equity’s own priorities have also shifted. As Matthew Doughty observed, investors are drawn to businesses underpinned by repeat income. In DWF’s case, that stability is most evident within its insurance practice, where panel appointments sustain recurring revenue and the platform connects across the wider firm’s commercial divisions, reinforcing growth on both sides of the business. Whether that model translates elsewhere is less a question of financial performance than of structure and culture.
By the time Inflexion approached, DWF had already spent four years operating as a listed company. Its transition to a corporate structure was advanced, and private ownership has afforded latitude to pursue growth. Since 2021, partner numbers have risen from 366 to 427, net profit from £34m to £49m, and revenue from £338m to £466m. The leverage remains material, but the direction of travel is clear.
For other traditional LLPs, adopting a corporate structure and layered leverage would introduce additional complexity at a moment when operational focus lies elsewhere. Add the anticipated impact of generative AI on pricing and productivity, and strategic caution will take priority over financial experimentation.
The economic conditions that briefly aligned the interests of big law with private equity have already passed. Capital has become more selective, while firms are becoming more self-sufficient. This dalliance was never meant to blossom into a full-blown romance. Private equity’s interest in law was a case of right moment, wrong match.