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Many top 25 UK law firms are planning to undertake M&A activity in the next year

But concerns have been raised about the ability of senior management to effect growth ambitions

2 July 2012

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By Manju Manglani, Editor (@ManjuManglani)

A third of law firms in the UK expect to engage in M&A activity in the next 12 months, according to a recent survey.

Of the 32 per cent of responding firms that plan to undertake mergers or acquisitions in the next year, the majority are top 25 firms (by fee income).

In the next three years, the number of firms looking to expand by merger or acquisition increases to 60 per cent, of which almost 40 per cent are top 100 firms.

Just over a third of respondents said they could envisage merging with another professional services firm outside of the legal sector in the next three years.

Forty-one per cent of respondents in the top 25 plan to acquire at least one smaller firm in the next 12 months, compared to just 20 per cent of all respondents and 13 per cent of respondents outside of the top 150.

When asked about their current position, 28 firms said they have either started preliminary discussions or are already in advanced discussions with other firms.

The need to remain competitive was cited as the top reason for seeking a merger or acquisition, following by the need to achieve the firm’s growth ambitions. A third of respondents believe a merger or acquisition will give them a better chance of securing higher margin work.

Of the firms that are disinclined towards a merger or acquisition, over half said this is because they are the right size already and about a quarter said they want to remain independent.

The findings are based on responses from more than 100 law firms, of which about a third are international, a quarter are national and two fifths are regional.

Need for better senior management

A third of respondents said their firms “definitely” need non-fee earning partners to drive their business forward, but the majority of these added that they do not have “the right senior people” to effect their growth aspirations.

The report notes that, of the 44 firms that indicated a need for better senior management, half are top 100 firms (including several top 10 and top 25 firms), and half are outside of the top 100.

Over a quarter of respondents said they currently have a non-lawyer managing partner, CEO or COO, while nearly a third are open to the possibility.

Thirty-seven per cent of respondents (including 15 from the top 50) said they are either definitely against or unlikely to be in favour of having a non-lawyer in a senior position.

The full findings of the survey, which was conducted by BDO, are published in Law Firm Attitudes Towards Mergers.

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