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13 September 2016

Mergers losing ground to tech investment and team moves

New research shows that the leading 200 UK law firms are moving away from mergers as a favoured growth strategy and instead see investing in new technology and team moves as most likely to boost their profitability.

By Victoria Basham

Daniil Peshkov

Research conducted for the report ‘From Recruitment to Robots: growth strategies for law firms’ by Byfield Consultancy and law firm Fox Williams shows that just 26 per cent of respondents are looking to merge in the next two years. The figure represents a significant change from the 2015 report ‘The Dating Game’, which showed 96 per cent of respondents in the top 200 UK law firms forecasted substantial consolidation in the UK legal market in the next two years. These findings mirror activity in the sector this year, with a large number of reported merger talks failing to produce a merger.

Tech investment

This latest research shows that law firms are now taking a different tack – 83 per cent of respondents chose increased investment in technology as having the best prospect of increasing a firm’s profits, followed by recruiting a team (71 per cent). Conversely, 86 per cent identified merging as having the greatest risk of reducing profitability when compared with other growth strategies.

Overseas not an easy option

Interestingly, the survey ranked opening overseas offices as being the least popular means of increasing a firm’s profitability, with only 8 per cent of respondents agreeing that increasing their international footprint had the best chances of increasing profits.  Although recent media reports featuring top 20 firms opening high-profile offices all over the world has created an impression that international expansion is a dominant part of UK legal growth strategy, the research shows firms are well aware that realising profits from overseas offices can be very challenging.      

Reputational risk

Risks to reputation are a major concern for those in law firms considering different growth strategies. Of the managing partners surveyed, 63 per cent believed that a failed merger had the highest risk of damaging their firm’s reputation. This was way ahead of a failed investment in IT or an unsuccessful team move, which ranked second and third.               

Treading water not an option

Gus Sellitto, managing director of Byfield Consultancy, commented: ‘Whatever growth strategy a law firm undertakes, it carries some risk to their reputation. And with the legal press, and others, closely scrutinising law firm growth initiatives, law firm leaders increasingly need to be aware of how much reputational risk - as well as financial - each strategy carries. Swimming too far into uncharted waters might be seen as a reputational risk too far, but clearly this report and the interviews we carried out for it show that simply treading water is no longer an option. ‘ 

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