How to value a law firm?

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July 05, 2024

by a searcher from University of Texas at Austin in Dallas, TX, USA

Can yall share best practices in valuing law firms? I’ve read about the 0.5-3x revenue rule of thumb, but was surprised by how this differed from typical SMB multiples of 3-5x EBITDA/SDE.

Appreciate the perspective on this!

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Reply by a searcher
from University of Chicago in Chicago, IL, USA
Similar to an engineering consulting firm, I'd value it based on a combination of historic revenues, existing contracts (for law firms: retainers), and additional consideration for any work that'll remain with the firm. This third point is really challenging for law firms because the work often goes away with the lawyer, so I'd personally never ever buy a law firm unless I myself was a lawyer / a partner at a law firm + had the same specialty
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Reply by a professional
from University of New Haven in Cromwell, CT, USA
The first issue is determining the type of law specialty - for instance is it a litigation firm or a general practice in a more suburban arena. The type of practice will determine the "price". There are some some sates that prohibit or limit the sale of law practices. The owner is a big value driver in many small practices as he or she is likley the one with the reputation and the ability to transfer the clients is very important.
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