SCOTTISH legal firms are increasingly profitable and optimistic about the future, but this renewed vigour is unlikely to halt the continuing wave of consolidation across the sector.
More than two-thirds of firms in a survey released today by accountant BDO reported higher fee income in the first half of the current financial year, with 44 per cent predicting a rise in profits per equity partner (PEP). The results follow significant improvement in fiscal management across the legal market.
However, 86 per cent said it is “likely” or “highly likely” that consolidation among mid-tier Scots firms will increase, continuing the trend that has seen the demise in recent years of names such as Tods Murray, Biggart Baillie and Dundas & Wilson.
Most believe consolidation will be driven by mergers with larger English firms. More than two-thirds said they have been in merger talks, but the main barrier to sealing a deal was the inability to find a partner with a suitable working culture.
Charles Barnett, partner with BDO, said there has been considerable improvement in financial management since the economic collapse of 2008. Every firm surveyed said it had managed at least one partner out of the business during the past year, while 22 per cent have demoted partners from equity to non-equity.
“Our survey reveals a much more savvy, and financially aware, group of firms who understand that managing the accounts is as important as managing clients and the firm,” Barnett said.
Recruitment is on the increase, but a note of caution remains in that 43 per cent believe it likely that there will be more insolvencies of Scottish firms. One-fifth of firms reported the injection of additional equity by partners, while 27 per cent said they had increased their bank borrowings.
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