Despite the run of consolidation in recent years, more than two-thirds of firms say the market remains saturated. The latest survey of the sector published today by accountancy firm BDO also found that more than half have held merger talks during the past 12 months.
Martin Gill, head of BDO in Scotland, said the market is more “business-oriented and realistic” in the wake of the financial crisis, which has allowed the majority of firms to boost fee income and profits during the past year. However, the findings suggest there “may still be some way to go”.
“I think that this survey reveals an optimistic view of the current state of the legal profession laced with some hard-nosed reality,” Gill said.
“Many firms are clearly doing very well and believe that the coming year will improve, whilst also recognising that this is an over-subscribed market where the potential for corporate failure of law practices remains a reality.
“It would have been almost impossible to imagine that law firms would fail a few years ago, and yet now over one-third of the practices in Scotland believe it will happen in the coming year.”
Names that have disappeared include Semple Fraser in 2013, while Tods Murray was bought in a pre-pack administration by Shepherd and Wedderburn the following year. More recently, Glasgow-based stalwart McClure Naismith fell into administration.
Nearly nine out of ten firms reported higher fee income in the first half of the current financial year, and 65 per cent said profit per equity partner (PEP) will increase for the year as a whole. Recruitment intentions remain positive, with 82 per cent hiring additional staff in 2015 and 88 per cent expecting to do so in the coming year.
Among those who held merger talks, 67 per cent said discussions failed because of a lack of suitable culture between the firms. Three-quarters believe more talks with national UK firms will happen in the next 12 to 18 months, and 63 per cent predict increased consolidation among mid-tier Scottish firms.
Oversight has been strengthened, with 70 per cent of firms saying they have managed under-performing partners out of the business. Six out of ten have “significantly” reduced a partner’s equity in the firm, and 40 per cent said they have demoted partners from equity to non-equity.