Twice as many SME law firms want external investment

A quarter of SME law firms in London and the south of England are seriously considering external investment, a survey by accountants HW Fisher & Company has suggested.

Researchers contacted 75 firms with turnovers of between £5m and £35m. They found that 26 per cent were considering external investment, up from 11 per cent in the previous year.

They also found a much bigger proportion were willing to bring non-lawyer partners or shareholders into their business, 33 per cent compared to 18 per cent the previous year.

Paul Beber, head of professional practices at HW Fisher, said: “There is a lot of talk about external investment and that means that all lawyers are thinking about how their businesses are financed.

“As there is more and more publicity, more will consider it. Whether or not it is suitable for them is another matter.”

Beber said investment in law firms could be “very attractive” for private equity, but there would be “very significant cultural difficulties” to overcome for most SME firms.

“The question of exit, usually a sine qua non for outside investors, is a problem which has not yet been resolved.”

The survey also found that nine out of ten firms were yet to be affected by the Legal Services Act, and 52 per cent believed the Act would not affect them over the next 12 months.

More believed they would gain business as a result of the ABS revolution than lose it, 22 per cent compared to 15 per cent.

Beber said that mergers and acquisitions by law firms were fewer last year than firms had anticipated, highlighting the difficulty of merging firms and the clashes in culture which could result.

Only 11 per cent merged or acquired another firm last year, and the same percentage expected this to happen in the next 12 months.

Beber said that financial year 2010-2011 was an “exceptional” one for SME law firms, which “gained ground at the expense of larger firms”.

He said this was because the larger buyers of legal services were shopping around, rather than going to the big firms.

“SMEs have a bigger exposure to the areas that are booming in terms of their mix of work. Litigation usually booms during a recession and the SME sector is particularly strong at this.”