Professional Practices Survey 2008/09 - Deregulation Of The Legal Sector

Author:Mr Giles Murphy
Profession:Smith & Williamson

One year after the Legal Services Act was introduced, interest

in raising external finance continues to grow. Giles Murphy

assesses the likely impact on the legal sector.

Following the introduction of the Legal Services Act (the Act),

we used our annual professional practices survey to explore how the

Act has affected firms' views on external finance.

Given that the Act enables law firms to join forces with other

professionals, a resounding majority (82%) of respondents

anticipate mergers between firms of different disciplines. This is

slightly up on previous years, as the equivalent figure in 2007/08

was 77%, and in 2006/07 was 78%. In order to finance this, 73%

expect that firms will need to raise external capital, whereas last

year the equivalent figure was 66%.

The survey explored when this finance might be raised. 28% of

respondents expect to seek external finance within the next two to

five years. The proportion of respondents who thought it unlikely

that they would raise external capital within the next two to five

years has fallen since 2007/08.

We also explored how external finance will be raised. Although

structured bank finance remains the most likely route, just over

half the respondents looking to raise finance would consider the

private equity/ venture capital route (52%), while 38% would

consider a public listing.

While we expected initial interest in the opportunities that the

Act created, this has scarcely changed over the last 12 months,

despite the worsening economic conditions and the decline in equity

values. This suggests there is a significant minority of the top

100 law firms which is actively pursuing the option of external

equity funding.

However, the realisation that this is not a route simply for

partners to sell out appears to be gaining some traction. The

'opportunity for partners to realise capital value in the

business' has slipped from the third most important reason for

wanting to raise capital to the fourth. The most important reason

remains 'funding the long-term future development of the


The survey explored the amounts firms might wish to raise and

while 34% would raise less than £5m, those wishing to raise

up to £50m has increased from 5% in 2007/08 to 10% this


Fig 2: Amount firm would wish to raise, if seeking to raise

capital in the next two to five years

Looking ahead

2009 will see the first aspects of the Act coming into force

when non-lawyers will be able to become partners in...

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