Introduction: 0:00

In episode two of Leading the Deal, M&A in the legal sector, Jeff Zindani sits down with Axel Kolsch, COO of Lawfront, to discuss strategy, consolidation and culture, sharing golden nuggets on how regional leaders can scale nationally.

Jeff Zindani : 0:18

Axel, really cool. I'm grateful for you to talk to us, actually talk to our listeners about what is happening in the sort of M&A space in the UK legal sector. For those people who have never heard of Lawfront, never even sort of come across the name before, you will, if you don't already know too much about them, they are one of the fastest growing legal groups in the UK. I think there's seven law firms you've actually brought into the group and combined revenue from what we understand around about 130 million. Is that right? Have I got all that right?

Axel Koelsch: 1:02

It's 130 million. We have six hubs is what we call our major firms. And we've done a total of 13 acquisitions over that period.

Jeff Zindani : 1:11

Wow. Okay. Didn't realize it was as many as that. Okay. Axel, let's just talk about your background. Can you give us a And I suppose in a sense, pretty direct. What did draw you to Lawfront?

Axel Koelsch: 1:26

My personal history starts off really with studying law in Germany and being slightly frustrated because as a lawyer, I always felt I was being told by clients to do things I didn't think were right. And I wanted much more to shape businesses rather than just be told by other people to help them shape their business. So I took a slight turn in into studying management in Harvard, spent a few years at McKinsey, and advising people on how to run their businesses, as well as advising McKinsey internally on how to improve how they run their business. And that then brought me into law firms to start advising law firms on their strategy and implementing that into operations. I then spent the next 20 years doing that for Magic Circle firms, doing that for leading national firms, always with a view how to drive strategic change and growth, international expansion, technology transformation, but always within that partnership model. What's always been driving me is what would it look like if you did this really well? For the last two, three years, while working within the large national firms, my test question to managing partners was always, I know we work with the constraints of a partnership, but if you were a private equity investor buying this law firm what would you then really do? I met the guys from Blix. I heard what they were planning to do. And I had to push them for quite some time to say, I really want to work with you. This is what I want to do. And it really gives me, therefore, kind of a platform to do the things I wanted to do and prepare for the last 20 years in terms of what would a law firm look like if you ran it as a legal services business.

Jeff Zindani : 3:17

Okay. Okay. Now, that's fascinating. Absolutely fascinating. Just for those people listening, actually, the Blix group is a private equity. They are, of course, behind Lawfront. Okay, that's right. With that in mind, Axel, because, I mean, your journey is fascinating because it's almost a city advisory sort of background, a bit academic as well, because I remember meeting you in London and thinking, actually, it's unusual to actually talk to somebody who's got a more empirical sort of view of things in terms of, hold on, because lawyers are pretty rational beasts and all the rest of it, but they don't always like data, throws them a bit. Let's just turn to Lawfront, because they've been very active, okay, in the sort of UK legal sector. What is the strategic vision? What is that sort of vision behind the business? And I suppose the second sort of question linked to that is, how do you think it's going to evolve really over the next few years?

Axel Koelsch: 4:16

So one of the things which really drew me to working with the law front on this one is that there's a single clear strategic vision, which we see percolate through the acquisitions, through the operational model, through the financial model, and everything that we do. It's quite simple. It really is regional leaders with national scale. So our approach is that we invest into regionally leading law firms, which have a broad practice, but are subscale for the way we do law today. They're doing normally at the outset between 10 or 30 million turnover. And that's simply not the scale at which you can drive technology efficiently. That's not the scale at which you can procure some of the things we need efficiently, including things like PII. We give them, frankly, all the things I've built historically for national and global firms in terms of infrastructure, knowledge sharing, people capacity and all other kinds of professional services skills, professional skills that you need to run a business nowadays. And we focus not on London, frankly, in a way, because that's a very over-lawyered, highly competitive market. What we want to do is to bring high-quality services and a high-quality working environment out to the regions where people otherwise don't really have access to those kinds of opportunities.

Jeff Zindani : 5:44

Again, just to help some people listening and Actually, I mean, some of the firms were very well-known and still are, of course, Nelson's, Farley's, Sleater-Hellis. And I think recently you've acquired Trethowen's, a well-known established firm in the Southwest. So clearly they've joined the group with all of that in mind. And just listening to what you have to say, I mean, what I find fascinating is that firms are, of course, struggling, aren't they, with IT issues, infrastructure sort of issues. et cetera. So this is a kind of bit of a welcome type of relief, isn't it, in many respects to the struggles they've got on a day-to-day basis and presumably with the kind of strategy going forward with some of these firms.

Axel Koelsch: 6:30

So because it came through in what you were saying, so key to operating model is that the firm remain firms as such. So Trefounds does not become law front. Trefounds continues as a brand in its market, but also really importantly as a cultural entity with their own managing partner and with the people who work together in the existing context. We invest into successful firms with a strong people culture and all that brand and that identity in it. And I think that that distinguishes us from other kind of operating models in the market.

Jeff Zindani : 7:06

Axel, let me just sort of open that up a bit, actually, because one of the difficulties I've got when I'm helping firms, particularly those firms looking to exit, is they will say, look, Jeff, we're going to lose our brand. We're going to lose the legacy. We're going to lose our identity. But underneath all of that, of course, is the culture within that firm. That, again, is clearly something they're very keen to retain. But there's clearly got to be some loss of independence, et cetera. Maybe we'll come on to that in a minute or two. Okay. So from your vantage point, given obviously your background, what do you think makes Lawfront so different to perhaps some of the consolidators or other law firms? I mean, in a way, you've already answered it to some extent in terms of brand and legacy. What do you think really is perhaps the secret source, if I can say that?

Axel Koelsch: 7:55

Well, as much of the secret source as I can divulge, it's fundamentally, I think there's two things. A, we do have a different concept and we invest in success. I think that's the way around. Some people otherwise may invest in turnaround. I think that is about a business model. It's a different business model. One thing I've learned over several years at McKinsey is There's a really simple lesson to strategy is find out what makes you successful and do more of that. And so what we're trying to do is to find firms which are successful in looking after clients and looking after people. And our objective is not to disturb that. And we identify the parts that can be done better by having that national scale, what the group can offer. That's what we bring in. And I think there is another distinguishing characteristic is I think both from my role and some other people we've brought into the exec team from the firms, is we understand how law firms work. You may have seen that in some discussions that firms you work with have with private equity investors. When faced with a bunch of accountants on the other side, they may not have the same sense of how individuals tick, how that culture works, and how to build long-term success. It's easy to buy some firms. It is quite difficult, I think, to buy great firms and to support them in continuing to be successful and grow.

Jeff Zindani : 9:22

That really does help, I think, for people to start to understand why you are different. And what I suppose a lot of people are interested in is some of the nuts and bolts. Obviously, you can't go into some of the detail because it's clearly confidential. But from a profile point of view, this is the kind of work I do in terms of trying to matchmake almost firms. What do you think is the kind of tipping profile. You've already identified success, culture, etc. But is there anything specific or perhaps let me turn it around a bit, really. It might be easier. What do you think of the non-negotiables, really, for a potential merger or acquisition? What do you think those red flags or non-negotiables are?

Axel Koelsch: 10:03

So for us, there's a few clear points which makes us turn around. Financial problems is one clear issue. A weak people culture. If it's cannot turn that around as a culture. And that's linked to then, I think, strong leadership. So if you have good financial performance, individuals who are happy working there, and a strong management team, these are the three sort of core building blocks. There's a few other things which are important to us. One is that we want to buy balanced firms that have a strong portfolio, which goes across several areas, just to weaken out fluctuations you will always see in residential, for instance, right now, PI go up and down. We look for balanced portfolios between corporate type work and work for individuals. And then what we're seeing now, we have six hubs currently. So the way we build it, we have look for leaders in each of the regions. So we look for a clear leading profile in one of the regions. So if you are in Yorkshire or the Northeast, we're looking for people there. We try not to have overlaps between our firms. So our search profile is, I think, on those things. Our key point is we're not a nursing home for failing firms. And we see that other people will bid a lot more money for unprofitable firms. We just find when you start with success, it's much easier to grow success.

Jeff Zindani : 11:28

Just touching on some of the stuff we've already spoken about around culture and obviously non-negotiables, what I've seen, I don't know what your view is on this, is sometimes there's a disconnect between what the partners, the owners of the business are telling me or possibly telling you and the real value or the culture of the business, when you start to really get under the bonnet of the firm, you start to actually think, hold on a second, there's a disconnect here. It is not as it appears. How do you really know until you perhaps get the keys of the car? Yeah?

Axel Koelsch: 12:01

I think we've learned over time that there are some indicators. And actually, what we see is getting these deals done really isn't easy. And you'll know that from your own experience. Some of the best transactions we've done have taken years several years to make happen. What we see is there's a different quality and value in the debate that you have with firms about whether they choose to join. Is someone asking how much money is in it for the equity partners? Is that the only thing they care about? Or are they having discussions with you around how do we retain the next generation of talent? Are they looking around building that next generation? Are they looking around retaining that cultural value that in dependents, you'll find that out very quickly in the negotiations. So if someone is just looking to sell out and run for the hills, that's a pretty good indication of their behavior prior to the sale, and that's probably not a firm that we'd want to work with. Now, that is really

Jeff Zindani : 13:03

fascinating for me. Okay. And I'll tell you why, because when I'm with law firm owners who are looking to perhaps exit, I almost see it as a bit of a red flag. We just want to cash out as quickly as possible, and we want to just get out as fast as possible. That tells me there's something not quite right. That's a really good insight, actually. And I think it's worth opening that up sometimes. Just talking about integration. I mean, you're obviously the chief operating officer of Lawfront. What I've seen with some of the deals I've been involved in is the failure, I think, sometimes to get to grips with integration. Everything's looking very exciting. The deal looks great. but not as much attention is paid to what's going to happen after the deal. And it's this integration playbook or the sort of plan that obviously is worked through. And I just really want to sort of ask you briefly, obviously, we could talk all day about this actually in terms of integration, is what does that kind of mean in practice in terms of law firm?

Axel Koelsch: 14:07

It's a really good question. And I spent a lot of time on that. Integration, it has many different components. And just to think through, you know, there's your technical business cultural. There's integration for fee earners versus the business services teams. And I think we've also thinking much more around the specific onboarding experience versus ongoing integration after that. We engage with firms very early on in terms of what that integration journey looks like. And very simply, we go back to the underlying proposition. If what we're doing is providing national scale to regional leaders, We actually do think through what does that mean in terms of experiences and value that we can create for all the different constituencies within a firm. We start preparing for that sort of around heads of terms stage, so many months before we actually launch. We try to start very practical planning several months then even before we go to an announcement of any deal. The most critical part, I think, is a around the experience your fee earners and clients have. The other bit is execution, but fee earners and clients need to have the experience of that. And we have a whole program that actually we look to deliver within the first hundred days, very clear experiences to all the fee earners around how their world will be, I like to say, the same, just better. They definitely don't like disruption, do they, Axel? I don't believe that whole shtick that lawyers hate change. I mean, I saw lawyers when you brought in the BlackBerry and they couldn't snaffle those things up quickly enough, right? So lawyers like change when it has a clear benefit to them and their clients in terms of doing that. What we do in each case is we provide clear nuggets of value to people in different parts of the organization within that first period. And for us, that can be, we very quickly bring in AI tools, train and enable, see and use these tools which it didn't have beforehand. Because, you know, helping firms to Thank you very much. you as the following, then you build that trust. And then for me, therefore, that allows people to engage, collaborate, and that's really it. So deliver on what you promised.

Jeff Zindani : 16:55

Yeah. And I think going back to the kind of lawyer culture, they can be fairly cynical, can't they, really about change. And when you start delivering, obviously, it does change things. Let's just deal directly with one of the big issues, of course, for a lot of firms, a lot of law firm owners with private equity. The conversations I had can actually be quite difficult because many of them will say, Jeff, external investment, we're going to lose our independence. What kind of firm is it going to look like? Now, to some extent, you've kind of already answered that. How would you address really the concerns when speaking to those sort of managing partners about that kind of loss of independence?

Axel Koelsch: 17:36

You ask two separate questions. One is around independence. The other one, what will the firm look like? And I think what will the firm look like? That's something we really discuss with people because it's around saying our ambition is for you to grow your firm to double or three times what it currently is more often than not that's something that the managing partner will have wanted to do anyway you ask them well what's currently in your way and they will say is like well we have those instances we want to consolidate a number of smaller offers into a bigger one but the current equity partner pool does not want to put up the money for that it's like well that's not a problem we can do that we want to buy out some local competitors, but we don't have the cash for it, and bringing them into the equity would dilute us too much. Say, well, we have financial means and methods of doing that, and we can help you bring those people in. I need access to technology tools, AI, et cetera, or I want to transform my PMS. And say, well, we have those tools readily available, and we can make them happen. So I think it's around saying, well, what do you want to achieve? And actually, if partnering with someone else helps you achieve a goal. That may not be independence as such, but it enables you much more to do the things that you want to do.

Jeff Zindani : 18:54

It kind of goes against what they think, but actually gives them more freedom in a way, and more independence. But no, that kind of helps. Let's just be pretty open about this. I'm dealing with partners sometimes who clearly have very little understanding of what private equity is, what the model is, etc. And there's still, in my view, that knowledge kind of gap do you think that's still the position where there's this kind of lack of really understanding of what goes on

Axel Koelsch: 19:21

I think all firms who are in the sort of target size profile and range are probably getting contacted by priority people all the time I think there is certain familiarity up to a certain level of depth I'm not sure whether they fully understand what life is like in that kind of firm so I would actually counsel anybody who's asking themselves that just speak to a partner in a firm that's been acquired and so you know contact any of our managing partners and and frankly that's what we do with people who talk to us like talk to people two three years into the journey and ask them what it's like I would trust people who've been through the journey and to ask them that's probably the best information there is a big difference I think in the experience that you have depending whether you have a direct PE investment or you being part of the group in the way that we have because dealing with a private equity fund directly is a very different kettle of fish.

Jeff Zindani : 20:16

That's actually a very interesting point you've made there, actually, because what we're looking at there is, of course, the sort of control auditing sort of issues, which are very different. And I think that's a cracking distinction you've made. What I'm struggling with sometimes is law firms who are responding almost aggressively saying that they're just asset strippers, Jeff. That's what private equity is about. We did a white paper earlier on in the year around private equity, and it's actually counterintuitive, of course, because it's people business. But do you still feel that sort of kind of respond to those sorts of questions sometimes? Or, you know, how do you feel about that really in terms of is it legitimate?

Axel Koelsch: 20:56

I fully understand the concern because I think there's private equity investors in other types of industries who operate that way. We quite often have sessions with partners about and explain how do we make money. It's very simple in the end. We are an early stage investor. And at some point, someone else will probably Invest More Money as a Law Front Group. And they will look for two things. They will look at what is the sustainable long-term profit? So what's the EBITDA? And what multiple do we attribute to that? How much money are you making? And what's the quality and resilience of that income stream? What we explain to people is that quality component, that multiple, is driven by the fact whether you have stable relationships, whether you have loyal people, whether you have a clean regulatory record, and whether you were set up for the future. So we are actually probably much longer-term thinkers in terms of creating value than an equity partner that is mid to late 50s who's just thinking about what money can I make in the next five years. We need to think about what will someone else in five years' time pay for the long-term prospects of this business. It's a fundamentally

Jeff Zindani : 22:11

different analysis, isn't it, really, if you think about it, too, and a little type model where full distribution of profits sort of to some extent short-term returns as opposed to medium long-term returns so that's actually a very very different business model Axel just moving ahead How do you see consolidation sort of reshaping things, really, perhaps over the next few years? What kind of part do you think law front's going to play in that transformation?

Axel Koelsch: 22:40

So I think the key aspect in how the consolidation of private equity and investment will reshape the legal services business is the question around propositions to talent. I guess what I see is we need to compete on the basis that individuals want to join and stay with the like ours, rather than going into a small regional partnership-based competitor. Therefore, we are raising the stakes, what this means in terms of people culture, in terms of technology offering you have, in terms of access to tools and skills to make you successful in that environment. I think that's where we will see the smaller firms and the five to 10 million pound bracket fall away. And I think one of the key dynamics that we'll all need to think about is, will equity path partnerships continue to give themselves away. Okay, that's quite controversial. I've told sort of in the market for talent, what we're competing with is historically equity partners nearing retirement, gifting the firm to the next generation in exchange for a bit of contribution to working capital. I think in that probably law firms are unique in still practicing that model. Any other business type I know, you sell your share in the business at some point in time. I think we need to be open. Part of the motivation in joining a private equity-based outfit is for equity partners who built a valuable business over 10, 20 years to say, do you know what? There's a bit of me in that, and I have forgone money and profits over a number of years to build this, and I want something in return for it when I retire. If that concept becomes accepted and becomes commonplace, then I think the corporate model with, you of sustainable financing just becomes the dominant one in the sector of

Jeff Zindani : 24:34

business. That's really fascinating. And I think also you've even had Clifford Chance talking their managing partner around about whether or not they would even look at private equity. Just finally, the last question. If you could offer one piece of advice to a managing partner who really is looking at these sorts of options, what would it be?

Axel Koelsch: 24:53

I spend a lot of time talking to managing partners around a deal and coming up with integration to talking about the why. Why are you doing this? What inevitably comes back for the people who decide to join us is around because this enables our firm to be what the best I think it can be. Therefore, I would flip the question around is think about what you want your business to look like in five to 10 years time in terms of size, reach, quality of offering, technology enablement. Then consider can private equity help you get there on If the answer is maybe, strike up a

Jeff Zindani : 25:32

conversation. Okay, right. That's great. And that's great to kind of leave this podcast. Axel, thank you so much for your time. Really great insights. Great to talk to you again. I'm sure we can catch up over a coffee and good luck with everything that's going on at Lawfront. I'm sure it's going to be even more successful going forward.

Axel Koelsch: 25:53

Thank you. It's been a pleasure.