14 Feb, 2012
30% of the UK’s top 40 law firms may join forces with a non-legal practice in next two years
Two firms from the UK’s top 40 law firms say it is ‘likely’ that they will join forces with a non-legal practice in the next two years. These two firms also say they are ‘likely’ to seek external finance in the next five years and consider a public listing as ‘possible’. One firm may look to raise as much as £50million.
Interest in tying up with non-legal practices goes far beyond these two firms, with an additional six firms from the UK’s top 40 reporting that it is ‘possible’ that they join up with a non-legal firm in the next two years.
These six firms also consider it ‘possible’ that they raise external finance in the next five years, seeking up to £20m. Only one of these six firms considers a public listing as ‘possible’ while three have private equity under review.
These results are part of a survey carried out by Smith &Williamson, the accountancy and investment management group, in which 126 law firms took part. Participants included 27 practices from the UK’s top 40, and 65 firms from the top 100 law firms.
“Our results suggest that 30% of the UK’s top 40 law firms may try to join forces with a non-legal practice within just two years. This would transform, not just the legal landscape, but the provision of professional services across the UK,” said Giles Murphy, who leads the professional practices team at Smith & Williamson and which advised Russell Jones & Walker (RJW) on joining forces with Slater & Gordon.
He continued: “The Solicitors’ Regulatory Authority has been accepting applications for law firms to become Alternative Business Structures from 3 January 2012 and once approved, a firm can take in external capital. So far, we have seen solicitors Silverbeck Rymer acquired by Quindell Porftolio and most recently the RJW and Slater & Gordon deal.”
“There has been much talk about all this, but one game-changing consequence is that firms from different professions join together. The current economic climate may fuel this.”
“The opportunity to merge with other professionals is likely to be of interest to high street firms, some regional practices and even the Big 4 accountants. Indeed, PwC has announced that it is looking at formally tying up with their legal practice PwC Legal.”
“As a result, within a few years from now, multi-disciplinary practices could become common, not just on the High Street, but also in the City.”
Smith & Williamson’s survey confirms interest from all but the very largest law firms in tying up with non-legal firms. Taking the top 100 firms as a whole, the survey results suggest that just over a third (34%) of the top 100 practices are interested in joining with a non-legal practice in the next two years.
As regards the smaller firms which took part in the survey (ie below the top 100), just over a third (35%) report that it is likely or possible that they join up with a non-legal practice.
“Commentators have been saying for a long time that the Legal Services Act will accelerate consolidation among professional firms in the High Street, but few, if any, had predicted such widespread interest among the larger firms. While we are unlikely to see magic circle firms tie up with their equivalents from the surveying or accounting fields, we could see a number of ‘silver circle’ mergers across the professions.”
Giles continues: “Early excitement over the Legal Services Act centred on the potential for law firms to organise an initial public offering. While interest in this undoubtedly remains – despite the uncertain economic backdrop – with 9% of the total sample group considering this option as ‘likely’ or ‘possible’, it is the opportunities to join with firms from other professions which is catching the imagination.”
Smith & Williamson’s survey also asked respondents if M&A activity arising from the Legal Service Act would give rise to the need to raise external finance. The results for surveys in recent years (see below) reflect a growing acceptance among law firms with a big increase for 2011/12.