Last month LexisNexis published its most recent report into the smaller end of the UK legal market. The Brief looks at its key findings.
In May the legal information and analytics provider LexisNexis published its 12th annual Bellwether report into independently owned UK law firms.
The survey of SME law firm leaders and associates found, among other things, firms were more likely to prioritise organic growth over M&A than they were 12 months previously, and that investment in technology was an urgent priority for a large, and growing, number of firms.
Growth
Forty-eight per cent of the SME firms surveyed reported having grown in the previous year, with 40 per cent saying business had remained stable. The most likely firms to report growth (67 per cent) employed between 11 and 20 fee earners.
Looking to the future, 70 per cent of firms surveyed were expecting to grow over the coming five years, 63 per cent of them through organic means. Last year just 40 per cent of firms planned to grow organically, although the figure was closer to this year’s in 2021 and 2022.
Tech investment a priority
Technology looks set to play a significant role in those growth plans – 35 per cent of firms surveyed planned to increase their technology expenditure over the next 12-18 months, with a further 21 per cent having already done so.
Adopting new technology is, though, a risk as well as an opportunity for smaller firms which, bluntly, need to choose the right system, and implement it in the most effective manner, first time. Quoted in the report, Anthony Earl, chair of the Law Society’s Small Firms Network Committee, summed it up:
Small firms cannot afford to get it wrong and start again.
Hiring and retention
Although technology is a potential key driver of productivity, fears that it will put lawyers out of work appear to be overstated, at least for now. Forty per cent of firms surveyed said they intended to hire more lawyers in the near future, with 16 per cent having already done so.
For lawyers themselves, meanwhile, life at smaller practices appears to be attractive. Just ten per cent of lawyers surveyed wanted to move to a role at a larger firm with the coming five years.
Sixty-two per cent planned still to be with the same employer in five years’ time, with just over half of these hoping for an internal promotion. Eighty per cent of respondents intended to remain working in a smaller practice, with 90 per cent reporting “average” or “above average” levels of job satisfaction.
M&A findings a surprise
Commenting on the findings, Patrick Tedstone, CEO at Stafford-based firm ORJ, said, “We read the LexisNexis Bellwether report with interest.
“For me, there are three key obstacles to provincial law firm mergers: culture, contrasting IT and finding comfort in the risk profile of each firm prior to merger. These are what I would call matters of a domestic nature.
On the other side of the coin, the economic forces in favour of a merger seem much more powerful. They include growing prospects for economies of scale, the ever-greater need for expertise and extended competition from virtual law firms.
“Given this, it is surprising that the number of firms looking to grow through M&As is falling.
“On another note, it’s good to see the number of solicitors planning to stay with their existing practices is increasing after the post-Covid merry-go-round.”
Expecting more itchy feet
Daniel Adams is director and co-founder of Arbor Law, a fast-growing, award-winning firm with offices in the UK and UAE. He said, “As director of a law firm whose rapid growth over recent years has been 100% organic, I can understand why two thirds of SMEs are looking to grow revenue in this way – rather than through M&A.
The numbers from the report that surprised me are the 62 per cent of lawyers not looking to move for at least five years. At Arbor Law we have welcomed a lot of experienced, senior lawyers into our firm recently.
“They are attracted by our model, which enables lawyers to build their own specialist practice at a pace suited to their lives, away from the pressures of a more traditional law firm. I think it will be interesting to see whether the ten per cent of lawyers who want to move to a bigger firm increases or decreases on the next survey, as I believe less rigid working models like ours will entice more legal professionals away from the larger firms.”
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