Most law firms willing to consider selling stake to external investor

Macpherson: Many firms looking for alternative forms of financing

Three-quarters of law firms – and especially those at the smaller end of the market – would consider selling a percentage of their business to an external buyer, new research has revealed.

A survey of 200 law firm partners commissioned by litigation funder Harbour showed that 149 of the 200 partners surveyed said their firm would consider external ownership.

All of those at firms with a turnover of between £5m and £10m said their firm would consider it, followed by firms of £50-100m (89%), £30-50m (86%) and £10-30m (79%). Those above £100m became increasingly less keen.

Loss of control was the issue cited by half of those who would not consider selling. Other factors included future partner compensation (47%), obtaining partner consensus (37%), loss of employees (33%) and loss of culture or ethos (31%).

The survey revealed that the vast majority of law firms are willing to consider using alternative funding in the next year to 18 months, though 83% of firms said they would also consider using cash reserves or asking for increased investment from partners.

Popular forms of alternative funding included bank loans (82%), greater use of damages-based agreements (79%), credit or lending facilities from litigation funders (78%), and stock market listing/non-lawyer shareholders (77%).

Ellora MacPherson, managing director and chief investment officer at Harbour, said: “These results show that the legal sector is well and truly open for investment from external sources.

“With 75% of law firms considering external ownership, it is a fascinating time in the market with the trend for mergers and acquisitions set to continue. Our survey shows this isn’t just the smaller firms, but also those with substantial turnovers.

“In addition, with law firms and their partners having weathered turbulent economic times during the pandemic, it is clear that many are looking at alternative forms of investment.

“At a time of high interest rates, specialist lenders to the legal sector, who understand lawyers and law firms, are well-placed to provide attractive finance options.”

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