Up to 15% of the UK’s 9,000 law firms will have to merge or face insolvency during the next few years warns Tim Bentall, a partner at accountancy firm BDO Stoy Hayward’s Southampton office.
BDO Stoy Hayward believes that the expected tightening in UK Banks’ strategy of lending will be responsible for a fundamental change to the legal landscape. This follows on from the already well-publicised new reforms including the Carter and Clementi Reviews.
Tim Bentall, partner at BDO Stoy Hayward’s Southampton office, said:
“Banks are starting to realise the affect all the changes to lending strategy are going to have on the market. Historically banks have been very keen to lend to law firms and as a result they were insulated from the commercial pressures that the banking, accountancy and other service sectors have had to face up to.
“Whilst banks are still keen to lend to the right firms, they now realise they need to be more discerning in their lending decisions. As a result, we believe at least 1,500 law firms will need to merge or be wound up over the next few years.
“There is also a widely held belief in the legal industry that only small firms with three to four partners are at risk. This is because, in the past, they have not needed to have a sophisticated practice management process in place. However, we would urge more medium and larger partnerships not to be complacent. The size of the partnership is just one factor and there are many larger firms who need to be more commercially minded.
“We don’t want to cast doom and gloom upon the industry. I would stress that well run, financially-aware firms and the strong niche players will be able to benefit from the changes afoot. There will be many opportunities to merge, which if properly planned will benefit all parties. However, we would urge any distressed law firm not to be too rash and jump at the first opportunity of a merger. Quick, defensive mergers could lead to lasting regrets long after the ink on the contract has dried.”
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