Law firms head to the banks as lawyers target expansion

Long-term lending to UK law firms has risen by 28 per cent over the last four years to £7.35bn, as firms compete to capture a bigger share of a recovering market, according to a leading finance provider.

New figures from LDF suggest that as the economy recovers, and levels of work return in traditional high-fee areas, firms have begun to increase their borrowing to fund expansion.

The current expansion in lending, up from £5.75bn in 2010, is a sharp turnaround from the recession, when even the largest legal businesses experienced a substantial contraction in available funding.

The most common reasons for firms increasing their borrowing include funding teams raided from competitors, opening new offices overseas, and investment in management information and other IT systems.

UK firms opening new offices overseas in 2015 include DLA Piper's foray into Jeddah, Saudi Arabia; Pinsent Masons move to Sydney and Melbourne, Australia; Clyde & Co's launch in Dubai and Qatar; and Trowers & Hamlins entry into Kuala Lumpur, Malaysia.

While 2014 saw a fall in the number of firm mergers, LDF says that borrowing to fund new marriages of convenience within the legal sector is increasing.

LDF's managing director, Peter Alderson, said: 'It's great for the UK economy that one of our genuinely world-leading industries, our legal profession, appears to be in expansion mode. Our law firms' expertise in international commercial issues, transactions and disputes is going to be an important revenue earner and job creator for the UK as global economic growth picks up pace.'

This year has already seen mergers between Wragge Lawrence Graham & Co and Canadian firm Gowlings; Midlands firms SGH Martineau and Shakespeares; City firm Moorhead James with Cambridge firm Hewitsons; and global giant Eversheds and its German partner firm Heisse Kursawe.

However, while traditional term lending to firms is rising, the value of business overdrafts in use in the profession has declined. Outstanding short-term loans to firms, primarily comprising their overdrafts, currently stand at £1.8bn, down 10 per cent from £2bn a year ago, and down 23 per cent from £2.4bn in 2011.