Law firm debt rears its head

As the year-end approaches, all financial metrics will come under the microscope, including debt. And recent events suggest that attitudes towards debt levels are changing.

Once the thought of a firm with a multi-million pound debt facility would have filled a partner with dread. Now a growing number of law firm leaders are looking to the bank to fund growth.

In what is a potential game-changer, Irwin Mitchell has agreed a £60m funding facility with three banks along with an additional £30m buffer deal. This was a firm that posted a revenue of £200.2m in 2012/13 for its portfolio of legal and associated businesses.

And Irwin Mitchell is far from alone in pushing up its debt levels. Research for our upcoming debt issue on 7 April shows that just 28.1 per cent of the 153 firms in our sample have zero debt, while the total debt among this group is £820m. Should they be concerned?

Take Olswang. It built up £3m in debt during 2012/13, but CEO David Stewart tells The Lawyer today this was a necessary investment in the future that “that will pay off longer term”.

With consolidation up and ABSs helping auditors march into the sector, debt is one uncomfortable truth that lawyers will have to get used to.

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