Law firms will continue to be unattractive to private equity investors until they improve how they present their financial situation and partners invest their own cash, leading investors said yesterday.
John Llewellyn-Lloyd, head of professional services at investment bank Espirito Santo, said external investment was the best way to ensure the future of firms, but potential backers were often put off by uncertainty over financials.
Llewellyn-Lloyd told the Modern Law conference that up to 8,000 firms will seek mergers or disappear altogether over the next five to 10 years.
‘Bank debt will be far less plentiful in the future – the professional services industry is going to see less debt and if partners won’t put their hands in their pockets you will have to go to external investors,’ he said.
‘But they need to feel there is a culture of internal investment. It’s very important to have your existing revenue generators all keen on owning shares in the business – if they’re not it’s highly unlikely they’ll be first in the queue for investment.’
Jordan Mayo, managing director of equity investor Smedvig Capital, said a number of firms had approached his company about additional finance, but market uncertainty and the firms’ business plans had prevented any deals.
‘We’ve spoken to 50 to 100 firms in the last year but have not invested in one yet,’ he added.
Llewellyn-Lloyd said it was inevitable that medium-sized firms would reduce in number in the coming years as non-lawyers enter the market and big brands dominate.
‘The legal profession has 20 times more firms than accountancy, which itself is still consolidating,’ he said. ‘There is no way to go but efficiency and consolidation – there are likely to be a handful of firms left in the middle market.’