Provisions of the Legal Services Act permitting law firms to take on external investment are ‘flying under the radar’ of most small and medium-sized firms, research has suggested.

A survey of 75 firms with turnover between £5m and £25m by accountants HW Fisher & Company found that only 11% had considered trying to raise capital through outside investment.

Some 36% of respondents said they did not believe they would be affected by the Legal Services Act.

Firms reported a strong interest in merging or acquiring another firm, with 36% saying they were now more likely to engage in mergers and acquisitions activity than they had been 12 months ago.

The report said: ‘There is no doubt that the arrival of the LSA will sharply redefine the nature of M&A in the legal profession and there is more choice and flexibility than there has ever been before.

‘It will be intriguing to see exactly how the market shifts over the coming years.’

The report added that new opportunities for external investment were ‘flying under the radar’ of firms, and more needed to be done to publicise the effect of the Legal Services Act, with so many firms believing they would be unaffected by it.

It said: ‘It’s no real surprise that, among those firms that do foresee an impact, it has led to some trepidation: half of them believe they will lose business.’