Legal Services: reforms may fuel buyouts and mergers

A leading management consultant last week predicted massive consolidation in the legal market once outside investment becomes possible, as a leading City firm announced its intention to become the latest to undertake a transatlantic merger.


Richards Butler and Reed Smith signed a 'letter of intent' to complete a full merger by January 2007, although Richards Butler's profitable Hong Kong office has confirmed to the Gazette that it is not part of the deal.


Management consultant Alan Hodgart said the UK legal market was currently too 'fragmented', noting that two-thirds of the top-500 firms have fewer than 100 lawyers.


He predicted that the availability of external investment following the reforms proposed in the government's White Paper on legal services would fuel a surge in 'complete buyouts' and mergers.


Mr Hodgart said: 'Some 331 of the top-500 firms have less than 100 lawyers - that gives an indication of the huge fragmentation of the UK legal market. The [price] pressures on firms will lead to more consolidation, as size is becoming an issue.'


He added: 'A minority sale of up to 25% [of a large firm to outside investors] could yield £50 million. But investors will want to see a return on their money, so a robust growth strategy will be required. Partners cannot expect to pocket the funds and run the business as before. There will be a need for significant change in how firms are managed - which is under way in some already.'


Reed Smith's global managing partner Greg Jordan said the firm's merger with Richards Butler would address 'the strategic need to merge in a fast consolidating global market'. The deal will create a firm of more than 1,300 lawyers worldwide and 300 in London. The overall firm will have predicted global revenues of $725 million (£415 million).