Large number of firms eyeing private equity, survey says

Macpherson: Many creative firms based outside London

Many law firms are actively considering taking private equity investment in order to expand, with those outside London especially keen, according to new research.

The interest in external capital comes amid concerns over higher levels of competition and greater challenges in attracting and retaining talent.

The survey of 203 law firm partners, commissioned by litigation funder Harbour, said that 40% of non-London partners felt competition and protecting their market position were the biggest challenges and pressures their firms faced, compared to 30% of partners at London firms.

Harbour said the cost of the war for talent “appears to have been felt harder outside of London”, where twice as many partners said it was one of the biggest challenges facing their firms.

Some 87% of non-London partners indicated they were actively considering allowing private equity to acquire a share of their firm in order to expand, compared to 64% of London partners; 88% of regional partners were actively considering a credit facility from a litigation funder versus 59% of London partners.

Non-London partners were also more likely (42% vs 20%) to see a merger with, or acquisition of, another firm as a key part of their firm’s post-pandemic strategy, “suggesting that there was an appetite from regional firms to be part of a larger group which could secure larger mandates from clients”.

Ellora Macpherson, Harbour’s chief investment officer, said: “The opportunities and challenges for firms outside London differ. Our experience is that many of the most creative and innovative law firms are based outside the capital.”

Harbour’s research also found that almost all firms were facing pressure from clients to reduce costs and use different billing arrangements, while clients were also taking longer to pay bills than a year earlier.

It said firms were divided on how to respond to these financial pressures: 40% said their primary focus over the next 12-18 months was increasing profit margins by simply lowering overheads, while 37% were investing in technology to improve efficiency.

Firms were also increasingly turning to external finance rather than partner capital to fund investments, manage their cash flows, or mitigate financial risk, with most looking at contingency fee arrangements and damages-based agreements in addition to litigation funding.

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