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Top law firms favour bank debt over market floatation

Legal sector adopts a 'wait and see' approach before committing to shareholder investment

14 December 2015

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Leading law firms are against ceding control to external stakeholders, preferring to use debt to fund expansion, according to new research.

Just one in six finance directors from the UK's top 100 firms by revenue said they considered private equity investment as a suitable source of external funding, while just 8 per cent thought a stock market listing was appropriate for their business.

All 26 respondents to the Thomson Reuters survey approved of bank lending, despite regulatory constraints on lending levels and higher margins on loans since the financial crisis.

Some 60 per cent believe alternative financing, such as asset finance or invoice discounting, was also suitable.

In May, Gateley became the first UK firm to float on the alternative investment market (AIM) to much fanfare.

However, Samantha Steer, head of large law strategy for Thomson Reuters suggested that Gateley's competitors are wary of following its lead.

'What's clear is that top firms are keen to avoid ceding control to external shareholders, perhaps wary of shareholders who expect to see short-term returns on their investment,' she commented.

'Law firms have yet to be convinced that they can retain the same levels of client service and partner retention under such a radical new arrangement that turns the traditional law firm ownership structure on its head.'

Recently, the shares in Slater & Gordon fell 51 per cent on the Australian Securities Exchange (ASX) after the chancellor, George Osborne, announced proposed limits for personal injury claims.

UK firms, perhaps understandably, remain cautious of external investment, with Steer opining that this was unlikely to change anytime soon.

'Until there are some more pioneers to demonstrate the potential for success, law firms are likely to remain hesitant, remembering high profile failures in recent years of other listed accountancy firms,' Steer added.

Matthew Rogers is an editorial assistant at Solicitors Journalmatthew.rogers@solicitorsjournal.co.uk | @sportslawmatt

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