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Accountancy firm BDO Stoy Hayward has predicted that 15 per cent of law firms will go out of business as banks rein in generous lending strategies.
BDO partner David Miles warned that firms would be forced into defensive mergers or face insolvency unless they instituted better practice management.
Miles said: “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.”
Miles said that banks have historically been very keen to lend to law firms and as a result they have been insulated from the commercial pressures that the banking, accountancy and other service sectors have had to face up to.
The changes to banks’ lending policies follow the Carter and Clementi Reviews which have put pressure on many smaller firms, but Miles said that larger firms were also at risk.
“We don’t want to cast doom and gloom upon the industry,” he said. “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,” said Miles.