Law firms keen to raise non-partner finance
A “core element” of top 100 law firms is considering raising finance through an initial public offering (IPO), private equity or venture capital.
With just a year to go before the Legal Services Act enables law firms to raise external finance, one in five law firms say they would consider an IPO and 43% would look at venture capital or private equity, according to research by accountancy firm Smith & Williamson.
Nearly four in 10 of the 121 law firms surveyed would expect to raise £20m or less, but a handful of law firms would seek in excess of this. The firms surveyed included almost 60% of the UK’s legal top 100 and half of the top 20 firms.
“The days when law firms relied solely on partners to fund development are fading,” says Smith & Williamson director, Giles Murphy.
“While the general view has been that only a few legal practices will seek external finance as result of the Legal Services Act, our research suggests a core element of the top 100 law firms are thinking seriously about raising finance through an IPO, private equity or venture capital. Furthermore, 20% of respondents consider it ‘likely’ that they will look at raising structured finance for their own firm.
“This is in spite of—or perhaps precisely because of—the financial constraints of the last year or so.”
More than half of the firms would use the extra funds for long term development, while four in ten firms would use the funds for the recruitment of teams and acquisitions. Ten per cent of the firms have already appointed non-solicitors as partners or members, and a further 13% intend to do so, mainly within the next year. One in five firms has, or expects to, appoint its financial director as a partner or member. Other firms named HR and IT specialists as potential partners or members.
“This trend is likely to gather pace and will ultimately put law firms in a better position to attract the most professional and able individuals to run their firms and allow them to diversify away from their core provision of legal services,” says Murphy.
Meanwhile Grant Thornton have reported that many leading law firms have turned to banks for funding in the past financial year. The sum borrowed has risen to £591m in 2008–09 from £425m the previous year.
