1 in 5 law firms to consider an IPO
4 in 10 firms would consider raising private equity or venture capital
1 in 4 firms have appointed, or plan to appoint, non-solicitors as partner
20% of law firms would consider an initial pubic offering (IPO) as a means to raise external finance and 43% would look at venture capital or private equity, according to new research. Almost 4 in 10 (38%) would expect to raise £20million or less, but a handful of firms would seek in excess of this.
These are key findings of a survey carried out by Smith & Williamson, the accountancy and professional services group, which involved 121 law firms and included almost 60% of the UK’s legal top 100 and half of the top 20 firms.
“The days when law firms relied solely on partners to fund development are fading. While the general view has been that only a few legal practices will seek external finance as result of the Legal Services Act, our research suggests a core element of the top 100 law firms are thinking seriously about raising finance through an IPO, private equity or venture capital,” said Giles Murphy, a director at Smith & Williamson who specialises in working with professional practices.
“Furthermore, 20% of respondents consider it ‘likely’ that they will look at raising structured finance for their own firm and a further 49% see it as ‘possible’. This is in spite of – or perhaps precisely because of – the financial constraints of the last year or so.”
The survey considered the reasons for raising finance and just over five in ten (51%) of firms would use the money to fund long term development, while almost four in ten (38%) would use the extra money to fund the recruitment of teams and acquisitions. Three in ten firms (31%) expect to use the money to fund development in new business sectors.
The introduction of the Legal Services Act also means that firms can now appoint non-solicitors as partners or members. One in ten respondents has done this and a further 13% are proposing to do so, mostly within the next year. A significant proportion of the rest of the respondents (almost one half of the total) are also considering such a move.
“This trend represents a significant shift in attitude towards the management and nature of law firms with some senior positions being opened up to non-solicitors for the first time. This trend is likely to gather pace and will ultimately put law firms in a better position to attract the most professional and able individuals to run their firms and allow them to diversify away from their core provision of legal services.”
The most likely candidate to be welcomed as a partner or member is the financial director with one in five respondent firms having appointed or planning to appoint their FD as a partner or member. One in seven firms expect to appoint their CEO as a partner or member while other participants mentioned HR specialists, senior marketing personnel and IT specialists. Some firms also plan to appoint patent agents or barristers as partners or members.
Also from 2011, legal practices will be free to merge with firms from different professions and more than three quarters of respondents (78%) agree that some practices will undertake such mergers. 65% of participants expect that this M&A activity will lead to the need to raise external capital, which is slightly up on last year when 59% expected such mergers to lead to external capital being raised.
“The Legal Services Act heralds a sea-change in attitude and potentially offers enormous opportunities to those firms prepared to take the lead. The growing acceptance of the role of external capital for law firms, combined with the inclusion of non-solicitors as partners or members represents nothing less than a revolution in the provision of law services over the next few years.”
Background on the survey
- Participants were managing partners, FDs or similar
- 121 different law firms represented
- Taking part were ten of the top 20 firms, 31 of the top 50 firms and 59 of the top 100 law firms
- 75% of respondent firms structured as an LLP
Size of firm
21% of respondents from firms with100+ partners/members
28% “ “ 50 - 99 partners
27% “ “ 26 - 49 partners
22% “ “ 11 - 25 partners
2% “ “ 1 - 10 partners
For further information:
Giles Murphy, head of assurance and business services and a member of Smith & Williamson’s Professional Practices group.
Tel 020 7131 4369
Email Giles Murphy
Press queries:
Kate Harrison, tel 020 7131 4228 or Jess Koslow, tel 020 7131 4264
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Notes to editor
Smith & Williamson is an independent professional and financial services group employing around 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. It operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Salisbury, Southampton and Worcester. Nexia Smith & Williamson is the audit practice of Smith & Williamson and is an independent company.
Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International
Nexia Smith & Williamson Audit Limited
Registered to carry on audit work and regulated by the Institute of Chartered Accountants in England and Wales for a range of Investment business activities. A member of Nexia International
