Law firms optimistic despite overcapacity belief: survey
Scottish law firms remain optimistic about their prospects, despite a widely held belief that there are still too many lawyers, according to a new survey.
The 2016 survey of Scottish independent law firms by accountancy firm BDO – covering 17 practices in the top 30 – reveals that financial performance is strong and firms are confident that client instructions will continue to flow in the current year.
For the first half of the financial year 2015-16, 88% of respondents reported higher fee income and 65% higher profit per equity partner than for the same period in the previous year. In 2015, 82% of firms recruited additional staff and 35% reported employee growth of more than 5%; 88% predict that they will increase headcount in the next 12 months.
However 69% of respondents believe that there are still too many law firms and lawyers in Scotland. Further consolidation especially of mid-tier Scottish firms, or mergers with UK national firms, is expected. More than half (53%) of firms stated that they had held merger discussions last year. Lack of cultural fit was cited as the main reason for mergers not proceeding.
BDO also sees "clear signs" that the sector has developed stronger management systems to adapt to the current economic environment. More than two thirds of respondents (70%) said they had managed partners out of the business, with 60% stating they had significantly reduced an equity partner’s interest in the firm and 40% that they had demoted partners from equity to non-equity.
Just under a third (31%) of firms reported that additional capital had been injected, and 23% said that other lenders and banks were keen to make facilities available. "It is encouraging to see that the opportunities are there for those firms that are seeking external funds to expand their business", Martin Gill, BDO's lead partner in Scotland, states in the foreword. "Borrowing is minimal and many firms remarked that they had no debt. This is a marked change from 2009 when 62% of firms were in discussions with their banks about additional borrowing."
Sectors most frequently expected to perform strongly this year are real estate and construction (67% agreement, though down from 92% last year), technology and media (67%), and leisure and hospitality (47%). Interestingly, all respondents believe that the downturn in the oil and gas sector will only have some or no impact.