Are we better sticking together?

Most commentators are predicting a period of necessary consolidation in the legal sector. In fact, many have been prophesising exactly that for the last few years. However, a quick look at the Trends in the Legal Profession report issued by the Law Society shows that the number of private practice firms has been fairly static over the past few years, and has actually increased during the recent period of economic instability.

The following has been extracted from Trends in the Legal Profession:

Year

Year

Number of private practice law firms

1991

10,234

2001

8,306

2007

10,114

2010

10,413

The recent increase in the number of firms may be because of the recession and the consequential number of redundancies made by law firms. The newly established, mainly niche, firms has boosted the number of firms, but it may just be a temporary statistic. The legal sector is undergoing an unprecedented period of change and many of the following factors are forcing firms to take a look at their options:

The Legal Services Act

Full external ownership of law firms is now in the process of being permitted. Some firms are gearing up to float and use that as a springboard to act as a consolidator. Private equity houses are interested in investing in law firms and consolidators. Membership organisations are well placed to offer legal services to their members. New entrants to the market are likely to be household names with large marketing budgets. They will aim to acquire work on a large scale, operating on low profit margins. They are likely to concentrate initially on high volume, low value work types that they believe can be commoditised.  New alliances are being launched with the aim of building recognised national brands for lawyers to compete with the new entrants.

Legal Aid Reform

The Legal Services Commission is looking to reduce the number of legal aid suppliers and move towards best value tendering. This may lead to work being concentrated on the larger providers. Proposals are also in place to remove certain work types from the scope of legal aid.

Personal Injury Reform

Proposals are in place to extend the range of fixed fee fast track cases, cap success fees and effectively remove after the event insurance. The proposals may result in fewer claims and reduced fees for lawyers.

Difficult Trading Conditions

Transactional work in particular has reduced. Other practice areas that rely on transactions are becoming more difficult to complete.  Redundancies have been made, but potentially not to a level that reflects the reduced workloads. Whilst benchmark profits per partner have been reduced as firms still need to cover fixed overheads, cash­flow has been impacted to a greater degree as matters are taking longer to complete and payment terms are extending. The cost of obtaining finance from the banks has increased.

Regulatory Reform

The SRA is moving away from a rigid rule­based regulatory approach towards a more principles­based, outcomes focussed form of regulation.  This is tied in with the Legal Services Act reforms and firms will be expected to re­evaluate their processes as a result.

Mergers & Acquisitions

After a lull in law firm M&A activity during the credit crunch and recession, we are now seeing an increase in activity. We are receiving an increasing number of enquiries for support and advice throughout the merger process. It is vital to receive experienced advice when undertaking something so important.

Some of the key areas  include:

  • Finding suitable merger candidates
  • Valuing the respective practices
  • Agreeing how the deal will be structured
  • Performing financial and legal due  diligence
  • Identifying the taxation implications
  • Harmonising policies and systems
  • Agreeing roles and responsibilities
  • Planning how the combined business will move forward post­merger

There are many more issues to be dealt with and it is extremely important to make sure that nothing is missed or left to chance.

The Armstrong Watson legal sector team is working with law firms throughout the country on their strategic positioning and how they can respond to the challenges and take advantage of the opportunities that face them. Please contact your local office to arrange to further discuss how we can help you, or contact me on 07828 857830 or  andy.poole@armstrongwatson.co.uk

If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletter

Subscribe

Get in touch

To find out more about how we can help you or your business, call us on 0808 144 5575 and speak to a member of our team. Alternatively use our contact form to send us a message or arrange a callback.

CALL 0808 144 5575

or

Contact Us

All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.

Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.

Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW

Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW