Law firms looking to take on private equity investment should take care to preserve their own identity and culture, a leading legal consultant said this week, as a private equity fund announced its intention to invest in law firms.


Mid-market private equity firm Lyceum Capital has said it intends to invest up to £255 million in legal services. It has recruited Tony Williams, former managing partner of magic circle firm Clifford Chance, and legal IT specialist Richard Susskind to help select firms to invest in.



The fund will target investment opportunities arising from the deregulation of the legal profession when the Legal Services Act 2007 comes into force in 2011. This could include providing capital to enable firms to acquire other practices, as well as investing in better IT systems.



Williams said: 'Lyceum is not a slash-and-burn private equity fund. It can help law firms introduce operational efficiencies, as well as fund growth - and growth is all-important in a market where panel systems favour larger firms.'



Lyceum managing partner Jeremy Hand noted that the legal ?services market is 'large' and 'fragmented', and said he anticipated consolidation of small and mid-sized businesses.



However, Nick Jarrett-Kerr, consultant and founding member of Kerma Partners, said that firms should think carefully about private equity investment in general.



He said: 'Firms must take great care to protect their service model and business recipe from being damaged by an external investor. There is a danger the firm could rapidly lose its identity and culture, and that ethics could be affected.'



Roger Blears, private equity partner at Birmingham and London firm Martineau Johnson, added: 'Private equity and law firms are potentially an excellent marriage. The challenge is to align the interests of the venture capitalist with the firm. Structural changes are required, such as ascribing capital value to the partnership rather than seeing partnership as a means to "emptying the till" every year.'



Meanwhile Lord Chancellor Jack Straw said last week that he was 'not in the least fearful' of a private equity investor taking a stake in a law firm. He said the investor would have an interest in preserving the firm's good reputation.



Jonathan Rayner