Consolidation vs. Creation: The Counter-Narrative in Professional Services
This month's Axiomatic Form 5500 data (November 2025) provides a necessary counterpoint to this consensus, pointing to a parallel trend of small firm creation. While consolidation certainly persists, the F5500 filings, which track the formation of new employee benefit plans, reveal a hidden boom in new professional entities.
Our data shows the largest net increases in active companies this month across three key sectors:
The data suggests a strong element of fragmentation is offsetting the merger activity. Professionals may be seeking greater autonomy, enabled by technology (like AI legal tech and cloud-based practice management) that lowers the barrier to starting an independent firm.
Nuancing the Trends
The chart below, which tracks the total number of active companies (Form 5500 filers) over the past two years, adds necessary nuance:
We see a divergence in professional services: Lawyers and Dentists show sustained net growth in company count, proving that formation is beating consolidation. For Physicians, the long-term trend aligns with media reports on consolidation (e.g., Becker's ASC Review's report that nearly half of U.S. physicians were hospital employees by 2024), showing a net decline of approximately 1,600 entities since late 2023. Nevertheless, the addition of 338 net new physician companies in November 2025 suggests a recent, albeit small, revival of independent practice activity.
Investment Thesis and Data Utility
This duality—consolidation coexisting with creation—presents a bifurcated investment opportunity. While consolidation targets large-scale M&A, the fragmentation trend points toward reliable investment in the "picks and shovels" that service this burgeoning base of small firms (e.g., specialized software, cloud-based services, and focused suppliers).
Axiomatic’s Form 5500 data is unique because it offers a ground-truth, bottom-up view of company formation and employment, directly tracking the establishment of benefit plans. This level of granular, non-survey-based insight allows investors to spot nascent trends.