Survey shows law firms’ business confidence is on a three-year high

Business confidence among the UK’s leading law firms is at a three-year high, claims accountancy firm Smith & Williamson.

The financial services group’s annual survey quizzed managing partners or financial directors at 125 law firms. Of the 82 that responded, 88 per cent said they were either very or reasonably confident about the business outlook for the next year. The equivalent figure last year was 83 per cent, dropping to 78 per cent in 2002.

Colin Ives, a professional practices specialist at Smith & Williamson, said the figure was better than expected. “There may be an element of overoptimism,” he added, “especially when you consider the relatively high figures for the last two years. But the fact is that the
UK legal market is doing pretty well.”

According to the survey, managing growth was considered the most important issue facing individual firms. For the first time, Smith & Williamson asked firms about buying and selling teams or individual practice areas. Despite the apparent optimism about the business climate, a significant 60 per cent of firms categorised by Smith & Williamson as ‘smaller’ (those with 0-10 equity partners) said they would consider disposing of a practice area.

“Smaller firms may be stretching resources by being in a non-core market,” said Ives. “Therefore, if they can sell, it could be profitable for a larger firm and good for the smaller firm.”

According to the survey, the areas generating most interest as acquisition targets were corporate, employment, finance and IP/IT.

Ninety-three per cent of large firms (50 equity partners or more) thought the level of merger activity would remain the same or rise in the coming year. Among the 11-25 partner firms the figure was 79 per cent, while 37 per cent of mid-tier firms (26-49 equity partners) said they were currently actively seeking an acquisition.

The survey also highlighted the substantial increase in prominence that the regulation of the legal profession has taken during the last 12 months, with the Clementi review in particular cited as one of the main issues affecting the legal sector as a whole.