25 February 2013

Survey: strong interest in MDPs and external capital among big firms

There is strong interest among the UK’s largest law firms in joining forces with a non-legal practice in the next two years, while several are also looking at external capital, according to new research.

Some 21 top-40 firms responded to the poll by accountants Smith & Williamson, and three said a tie-up with a non-legal practice was ‘likely’, with a further six considering it ‘possible’.

Six firms from the top 40 said they may seek external finance; five are considering private equity, one potentially raising over £50m.

“This could transform, not just the provision of legal services, but the entire professional services sector within a very short space of time,” said Giles Murphy, head of professional practices at Smith & Williamson.

Unexpectedly, the interest in a deal with a non-legal firm was stronger among the bigger players in the top 100 than the smaller – seven of 33 firms from 41-100 that took part in the survey expressed interest. Overall this suggests that 30% of the top 100 may seek to become an alternative business structure.

A quarter of the surveyed respondents who were interested in a deal with another type of professional saw accountants as their preferred type of firm, followed by patent agents and surveyors.

External finance would be used to fund the long-term development of the practice, develop further sectors and to fund recruitment of teams and acquisitions.

Acquisition of teams is already rife, with nearly half of the top-40 firms, and 36% of the top 100 overall, acquiring at least one team in the last year. Three teams changing hands included over 20 people although the majority were of five individuals or less.

Mr Murphy said: “As it becomes increasingly difficult for firms to grow organically in today’s tough environment, there is a clear appetite for acquiring teams from others. Given that the Legal Services Act provides an additional source of funding, we should expect to see firms taking advantage of this in the near future as a way of funding an acceleration of growth through acquisitions and team moves.”

By Neil Rose

Tags: ABS, Alternative business structures, external capital, MDP, multi-disciplinary practice