Survey: law firms’ interest in external investment and ABSs is cooling

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By Legal Futures

29 June 2011

Williams: firms have done more research into external investment

Law firms are reporting diminishing interest in external investment and alternative business structures, a new survey has found.

The Legal Services Act Index, produced by accountants and business advisers Baker Tilly, found that 50% of respondents were considering an outside investor, compared to 60% when the same 100 solicitors from a range of firms were quizzed last autumn.

However, firms of fewer than 25 partners remain more interested in external investment than larger practices – 53% against 45%.

Levels of interest in incorporating to provide a currency for investment (i.e. shares) have also decreased, the survey said. Only 24% of respondents are considering this now, compared to 34% last year.

Baker Tilly partner Rowan Williams said: “Previously, law firms were interested in the opportunities provided by external investment from listing or private equity.

“However, over the last six months, management boards have done more research into what external investment would actually mean to their business. Firms are either not willing to let outsiders get involved in management, or have reached the conclusion that external investment is not the answer to achieving their strategic aims.”

The survey said external investors are interested in businesses which are dependent on efficient processes and volume of transactions rather than on key individuals, “and so are not going to be an option for many firms”.

It revealed faltering confidence among solicitors, particularly at larger firms, that they have a good understanding of the requirements of outside investors. “This is surprising considering the volume of press coverage in recent months,” the survey said, “but perhaps this is a reflection of the fact that external investment is more complex than originally thought.”

The survey revealed that 58% of law firms either have or expect to lose work to non-lawyer competitors, up from 53% last year.

Some 21% of law firms respondents – up from 13% – are actively pursuing providing non-legal services via an appropriate non-lawyer partner. In line with this, 36% of law firms expect to allow non-lawyer ownership, whilst 26% expected to in 2010.

Despite this, there was only a slight increase in non-lawyer management or non-executive members in law firms.

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