Borrowing your way to growth

Today’s issue of The Lawyer is a first: we survey 153 LLP accounts taken from the list of firms in The Lawyer’s UK 200 to investigate debt levels within the UK’s leading legal practices.

Catrin Griffiths

While we have a caveat that there are many varieties of partnership funding, what is clear is that a traditionally conservative profession is now embracing debt as a tool.

The insurance-heavy practices dominate the table on total volume of debt. They include DAC Beachcroft, Clyde & Co, Kennedys, Irwin Mitchell (which, since the LLPs were filed, has secured another £90m of funding facilities) and Hill Dickinson. In a similar vein, many other insurance firms are clearly having recourse to debt to fund long-tail WIP on litigation. Fentons, which was absorbed by Slater & Gordon last year, had a debt of £10.4m on a turnover of £26.3m. Colemans CTTS has a debt of £10.3m on revenues of £15.3m.

 Yet you can’t make easy assumptions. Some personal injury-focused firms have little or no debt – Thompsons has zero, for example. And there’s little discernible pattern among those firms that increased their borrowings most over the last year; Lewis Silkin, Browne Jacobson, Ledingham Chalmers, Matthew Arnold & Baldwin and BLP have little in common, either in terms of market position or practice mix. Herbert Smith Freehills, which tops our table with £124.98m on a seven-month turnover of £469.4m, has undergone huge expansion, from New York and Germany launches to a global merger. Debt figures should be read in the context of the individual firm, as dramatic fluctuations may be down to one-off events and not systemic or easily segmented.

 There are 44 debt-free firms, representing 29 per cent of the total surveyed. They include the magic circle, Eversheds, Ashurst, CMS Cameron McKenna, Wragges, Nabarro, Macfarlanes, Taylor Wessing, Ince & Co, Burges Salmon and Mills & Reeve. A good number of sizeable Scottish firms are conservative – Dundas, Brodies, Maclay Murray & Spens, Shepherd & Wedderburn and Thorntons are debt-free – but the other zero-debt firms tend to be in the 100-200 tier. On this showing, debt is most often embraced by those firms in the tier from 40 to 100 of The Lawyer’s UK 200 – the segment of the market most prone to consolidation and which will come under attack from the accountants. It’s not the most comfortable of places
to inhabit.