Private equity investment is set to transform legal process outsourcing in a trend that will see many commercial firms miss out on work and could affect the training of future solicitors, leading experts have predicted.

David Hawley, partner in the consulting strategy department at Deloitte, said private equity firms have largely switched their focus away from investing directly in law firms when the Legal Services Act 2007 permits external investment next year. Instead, he said there is a strong appetite for investing in LPO and technology companies that provide services to law firms.

Hawley said: ‘A year or so ago there was a lot of interest in law firms from private equity, but that has dropped off as people have understood the sector more. They are still interested in law firms at the volume end, for example bulk conveyancers, which are not so dependent on the partners.

‘But now the focus has moved to people who provide law firms with services. For example, LPO providers.’

Hawley added: ‘In the conversations we have had with private equity, [they] have been quite interested in technical companies involved in LPO. The support services universe could change substantially.’

Hawley said private equity investment could lead to technological advances that would considerably improve firms’ processes and efficiency. He said: ‘Investment in tools and capabilities will enable firms to be managed better, and that must be a good thing. But from a competitive point of view, if everyone is doing that, it is hard to differentiate yourself.’

He added that the ‘obvious customers’ for LPO providers were corporates rather than law firms.

Jeremy Black, associate partner in Deloitte’s professional practices group, predicted that LPO providers will ‘end up taking a whole chunk of work from law firms’.

He said basic work which is normally performed by junior lawyers will instead be done by LPO providers. This would include contract drafting, contract review, disclosure for litigation and due diligence.

Hawley warned there could be a knock-on effect on firms’ willingness to take on trainee lawyers. ‘If LPOs do all the junior work, why would you pay a junior lawyer in a law firm to do anything? All you want is partner equivalents,’ he said.

Stephen Mayson, director of the Legal Policy Institute, said there were clear reasons why a private equity investor would be interested in investing in an LPO provider that would become big enough to service a large section of the City firms, achieving economies of scale. He said the next step would be to provide the work directly to clients and ‘take it out of the market’.

Mayson added that City firms did not anticipate this development and were ‘missing the point’ about some aspects of the LSA reforms.

Private equity investor Lyceum announced its intention to invest up to £255m in legal services in March 2008. Last November the investor sealed a deal to invest £25m in new business process outsourcing group Laureate Legal Services.