Two-thirds of business law firms (64%) say merger activity in the legal profession means they will need to raise external capital, while one-third would consider a public offering on the Alternative Investment Market (AIM) or the London Stock Exchange, research has shown.

Of the 82 firms polled by accountancy firm Smith & Williamson, only 17% ruled out accessing external capital, while the remaining 20% were either unsure or refused to answer. Asked how they would increase their financial resources, three-quarters (72%) said they would look to structured finance through banks. Some 43% would also consider private equity, while 35% could seek a listing on AIM or the main stock exchange.


A third of the firms surveyed (35%) had more than 50 partners, 17% had 26-49, 17% had 11-25, and 4% had ten or fewer.


Simon Mabey, chairman of Smith & Williamson's professional practices group, warned that turning to the banks for structured finance would not necessarily mean that partnerships would retain control.


He said: 'In theory, firms are still masters of their own destiny, but if they mess it up, the banks will start to get involved in the running of the practice. Getting too much in the pockets of the banks does run risks.'


On the issue of public listings, Mr Mabey said much depended on the outcome of Sir David Clementi's review of the legal services market - Sir David is scheduled to report next month. However, Mr Mabey pointed out that a significant number of 'people businesses' had already obtained a stock market listing.


Law Society President Edward Nally said: 'I cannot think of a clearer demonstration that the provisional view we have taken on this issue is a correct one. There is real interest out there in raising capital - having alternative sources of funding it would be good news.'


The prospect of Sir David allowing outside ownership of law firms has previously prompted an angry reaction from the Bar Council. At last month's International Bar Association conference in Auckland, chairman Stephen Irwin QC warned that it could provide a recipe for terrorists or criminals taking over firms (see [2004] Gazette, 28 October, 6).