Private equity firms are stepping up their interest in English legal practices as they search for lucrative investment opportunities in a difficult market, according to Professor Richard Susskind, author of The End of Lawyers?

However, the legal services futurologist warned that law firm owners hoping to pocket a retirement nest egg while continuing with business as usual are likely to end up disappointed.

Susskind, a consultant to private equity outfit Lyceum Capital, was speaking at last week’s Law Society of Scotland 60th anniversary conference in Edinburgh. He was asked how external investment is likely to change the shape of the legal services market south of the border when alternative business structures are permitted from 2011. Scotland is legislating to introduce similar reforms.

‘Private equity firms will not be attracted to law firms as they are currently constituted,’ he told delegates at Edinburgh’s International Conference Centre. ‘What they do is put in "tough cookies" to manage firms they invest in and look at doing business in a fundamentally different way. They will not take over firms and just do a bit of "tucking and trimming". They may be attracted to the brand, but their targets will become different kinds of business altogether.’

Susskind, a critic of what he perceives to be the inertia of many law firm managers and owners, is not impressed with how the sector is handling the challenges posed by a savage recession. ‘In general there seems to be a disturbing strategy of hunkering down, cutting some fat and hoping that business will return to normal. That is not good. The terrain will look very different when this is over. This is not a minor blip, but a discontinuity.’

He added: ‘The problem is that most senior lawyers think only two months ahead. They have no coherent picture of the future. The planning is not being done. And it is senior lawyers who need to be driving change.’

Speaking at a panel discussion on delivering legal services, Graeme Garrett, a partner at Scottish personal injury firm Digby Brown, expressed concern about the evolution of the PI market. ‘We are hearing that major English PI firms are putting themselves in the shop window to be bought by insurance companies. This poses huge problems of independence and conflicts of interest. How can you operate in the public interest if a controlling stake is held by the insurance industry?’

The conference also heard from Stephen Boyle, senior economic adviser at Royal Bank of Scotland, who considered the outlook for the global economy and its impact on lawyers.

His message was stark. Boyle does not see any sign of a significant upturn in corporate mergers and acquisitions work, formerly a cornerstone of many City practices’ income. Though there is pressure to implement M&A deals, he pointed out that the cost of capital has increased significantly in an illiquid market and he does not see that easing for the foreseeable future. He was also pessimistic about the immediate prospects for the conveyancing market, despite talk in some quarters that the housing market may be turning. ‘There will also be further falls in commercial property prices, and volumes will remain low for some time to come,’ he said.

In another speech, Scottish QC John Campbell, current president of the Chartered Institute of Arbitrators, expressed the hope that Scotland could soon come to rival London as a centre for international dispute resolution.

At the moment, Campbell admitted, the state of Scottish arbitration law is ‘lamentable’. However, this is set to be rectified by the Arbitration (Scotland) Bill 2009, published on 30 January, which has all-party support at Holyrood.

‘If you look at dispute resolution in London, 80% of the costs involved are legal costs,’ said Campbell. ‘Scottish lawyers are much cheaper. But we need more training for arbitrators and adjudicators because there’s a shortage.’

He concluded: ‘we stand at the threshold of what will prove to be a new golden age of arbitration in Scotland. Scotland is a wonderful venue for dispute resolution, both domestic and international. This bill meets the needs of all, from consumers to international practitioners at the most senior level."