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
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
2009 will see the first aspects of the Act coming into force
when non-lawyers will be able to become partners in...