As traditionally conceptualised by the public, the solicitors profession will cease to exist in about 10 years. That is how long it will take for sole practices and old-style partnerships to die out altogether, at the current rate of attrition. By 2035 or thereabouts, private practice will have been fully corporatised.
Most will know that the advent 13 years ago of alternative business structures (non-lawyer ownership) has had a far less radical impact than anticipated. Much-hyped ‘Tesco law’ – people buying legal advice at the checkout along with their baked beans – proved to be a chimera. But a quiet revolution has been going on in the background.
In January 2015 some 2,801 sole practices comprised 27% of an SRA-regulated community of 10,312 firms. Today, under 1,500 sole practices account for just one in six of the 9,000 or so firms remaining. The number of partnerships, meanwhile, has fallen from 2,373 to about 1,000.
Three out of four law firms are now either LLPs or, more commonly, incorporated companies.
This structural transformation can be partly attributed to the sector becoming more commercial and entrepreneurial. If a law firm wants to accept external investment, for example, it will become a limited company so it can offer shares to its owners.
There are more prosaic reasons though, including tax treatment and economies of scale. In particular, the ever-growing compliance burden on small owner-managed businesses has become insupportable for many. There is strength, or at least resilience, in numbers (that is to say, mergers).
So what else might we see in the coming decade? The industry, if it can be so described, has proved less than fertile for consumer brands and consolidators (see Metamorph, QualitySolicitors et al).
More intriguing is the role of private equity, to which this high-margin sector has become increasingly attractive. National outfit HF’s sale of a substantial minority stake to CBPE just before Christmas is the latest in a string of PE deals.
When, and to what profit, private equity will exit these firms has the potential to further shake up the sector. IPO, sale to another PE house or sale to another investor?
If private equity houses end up making serious money, many more mid-sized law firms will be in their sights.
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