Mid-market law firms are responding cautiously to the changing legal services market, with just 14% saying they are actively considering external investment and 21% anticipating a merger or major restructuring in the next year, according to new research.
However, the report found that a significant number of firms either have changed (48%) or will change (30%) their business development strategy as a result of the Legal Services Act.
The survey, conducted by legal research company Jures for LexisNexis, canvassed the views of 101 mid-market private client and commercial practices, of whom 71% said they were not interested in external investment (15% were unsure).
Richard Barnett, senior partner of the Southport-based volume conveyancing firm Barnetts, is one firm considering external investment: “We are probably the ideal potential target for anyone wanting to come into this market,” he told researchers. “We have to be an attractive proposition for entrants coming into the legal services market wanting to cover off conveyancing and looking to use bulk suppliers rather than setting up in-house.”
Yorkshire legal aid firm Switalski’s reported that it is considering merger in response to the changing environment, mainly the legal aid cuts. Managing partner John Durkan said: “In the past, we have never been inclined to [merge] but now everything is on the table. We need to work out how the legal aid cuts are going to impact on our effectiveness and whether there is any merit in merging. I have an open mind.”
A sixth of the firm have already merged or gone through a major restructuring during the last two years.
The report focused particularly on business development costs, finding that 47% had increased their expenditure in this area over the past year, and 56% expected to in the coming 12 months.
Word-of-mouth, referrals and networking scored as the most effective business development activities for both private client and commercial work.
But these were often combined with other activities. Sue Miller, head of business and development at south Wales firm Hugh James, explained that a telemarketing campaign that her firm ran 18 months ago had “a moderately good result”, but that significantly improved when it ran the same campaign a year later. “The reason is that they recognised the name from last time we called. That is power of ‘word-of-mouth’. We had managed to instil ourselves [in their minds].”
Though social media was ranked very poorly as an effective marketing activity, follow-up interviews with some respondents identified the importance of online marketing. “There is a definite growing trend for picking up instructions through Internet,” Simon Craddock, a partner at Brethertons solicitors told researchers. “‘This isn’t entirely empirical but I would say that five years’ ago one in 10 new clients came from the Internet and now it’s three or four in 10. That’s purely from good Google ranking.”
Respondents said The business development initiatives that have had the most impact over the last 12 months were the investment in employed non-lawyer business development specialists (18%) and the use of external consultants (15%).
Despite the apparent concern, the market appears bullish about the post-Legal Services Act environment. Despite taking knocks during the recession – 50% of respondents admitted to making staff redundant – 76% believed that they would post double-digit profit increases during the next two years.
Jures is a Legal Futures Associate.