Law firms seek friends to see off new rivals

Mounting pressure on profits has led to a sharp rise in the number of mergers between law firms, according to research.

Figures obtained from the Solicitors Regulation Authority show that the number of tie-ups jumped by almost a third last year to 238, the highest level since before the downturn.

There were 168 mergers in 2010 and 146 in 2009, the figures show.

Tommy White, a partner at Wilkins Kennedy, a mid-tier accountancy firm, said that many of the deals had been motivated by firms trying to protect their positions against rising fee pressure and the threat of increased competition, rather than by ambitions to expand.

“Larger law firms are increasingly looking to cut costs and reduce underutilised staff and property,” Mr White said. “Mergers are an opportunity for significant economies of scale, so can be an attractive option for firms looking to explore every extra avenue of revenue or to squeeze as much value from their businesses as they can.”

Smaller firms, meanwhile, increasingly regarded mergers as a way to protect their businesses against the emergence of new competitors under more relaxed ownership regulations, he said.

The introduction of the Legal Services Act, widely known as the “Tesco Law”, has led to the likes of The Co-operative entering the market for consumer legal services. This threatens to deprive traditional high street solicitors’ practices of work such as conveyancing and wills. Those practices were already suffering from the decline of legal aid, Mr White said.

The figures come as R3, the association of insolvency practitioners, warned that the increased competition could push 2,000 of Britain’s 11,000 law firms into bankruptcy in the next year.

Lee Manning, president of R3, said: “With the introduction of the ‘Tesco Law’, new specialist firms will begin to emerge and they will be difficult for the high street to compete with, particularly because small practices cannot afford the level of branding and marketing that these new firms will be able to take advantage of. It is also unlikely that they will have the resources or the technology to compete.”