The Covid-19 pandemic may reverse the trend towards consolidation in the SME legal market, with start-ups emerging as effective competition, according to the former boss of national law firm Cartwright King.
Cartwright King expanded rapidly beyond its East Midlands roots during Rupert Hawke’s time as managing director and he said that for many years he agreed with the widespread view that the legal market would continue to consolidate.
But in the wake of coronavirus, he said mid-sized and smaller firms were likely to fragment instead, “leading to a larger pool of solicitors in the SME legal arena”.
Mr Hawke, who left Cartwright King last year and now runs law firm consultancy Hawke Legal, said the likelihood of firms failing because of cash flow problems would see a lot of solicitors being made redundant.
“With fewer opportunities in the marketplace, we are likely to see many lawyers take the plunge to start their own firms,” he explained.
Even if firms make it through the crisis, they would be “squeezed by the effects of Covid”, leading to fewer promotion opportunities.
Meanwhile, with clients rapidly getting used to receiving services remotely, the barriers to entry were lowering.
“Cloud-based IT systems mean access has becoming easier and less expensive. Using IT productively means support staff requirements are less. Younger lawyers can often understand and utilise marketing opportunities better than traditional large firms who often aren’t in touch with their market.
“These examples illustrate how the modern ways of working help reduce barriers to entry via access and cost control with many larger firms stuck with ingrained cultures and costs that can’t easily be reduced.”
Mr Hawke also predicted that the government would provide help for business start-ups in the next couple of years as part of efforts to rejuvenate the economy.
“We are likely to see a continued consolidation of larger firms as acquirers with significant cash reserves can cope with taking on and reorganising struggling competitors, who will often be keen to find a port for their floundering vessel.
“It’s in the mid sector, the regional and traditional ‘high street’ firms who could fragment and contract with solicitors leaving either voluntarily or through redundancy as internal opportunity reduces or cuts for the firm become necessary.
“And so we could see a larger volume of small start-up firms that can compete with mid-sized firms who are likely to reduce in number.
“Arguably this might have been inevitable and we could not see it. Covid has not only opened our eyes to the shake-up, it has also accelerated it.”
Mr Hawke has launched consultancy business Buildalawfirm to help solicitors who are striking out on their own.