Mergers in mind as big firms grow in confidence, say surveys


City of London: will 2010 see an upturn in merger activity?

Big law firms are showing increased appetite for merger this year, while 40% are planning to make lateral hires of senior teams from competitors, research amongst finance directors of the top 100 law firms by Sweet & Maxwell has shown.

This interest, combined with fewer plans to cut support functions and 20% considering expanding overseas, indicated that confidence is returning to the City when compared with the results of the same survey last year. Some 10% of finance directors said merger was likely, and 37% said it was possible.

The findings were backed up by a separate survey by accountants BDO, which found 78% of law firms questioned feeling confident about the year ahead – on average law firms predicted a drop in revenues this year of just 2%.

According to the Sweet & Maxwell research, only public sector work is expected to contract substantially in 2010. Growth is expected in most other fields, with the fastest increase expected from restructuring/insolvency, commercial litigation and fraud.

The survey said a number of leading firms felt that they had reduced their staffing levels to the point where they were as lean an organisation as possible. This was again backed up by the BDO research, which said 74% of law firms plan to make no redundancies, while the rest intend to lay off up to 5% of their staff

Nick Carter-Pegg, head of professional services at BDO, said: “The outlook for professional services firms, and in particular the legal sector, is generally positive which is at odds with the low levels of confidence in other sectors. There is a huge amount of change coming in the legal sector with the full implementation of the Legal Services Act in October 2011, but at least firms are now facing the future with confidence. However, for most firms “business as usual” going forward will just not be enough. All firms should take this opportunity to re-work their strategy so that they are well positioned for the changes next year.”
Sweet & Maxwell said finance directors remain very conscious of the economic environment and pressure on costs, with 43% unlikely to increase the firm’s charge-out rates this year. Increased cross-selling was the measure the most often mentioned (80%) by finance directors as part of their plans to improve profitability, followed by tighter credit control (77%), lateral hires and cutting unprofitable services (33%).

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