A study of Alternative Business Structures and their role in a changing legal market
A major survey of 100 commercial law firms released June 2012 furthers the debate on the changes taking place to the legal market under the Legal Services Act (LSA) and looks at the appetite for Alternative Business Structures (ABS) which became possible under the Act. ABSolutely fabulous – A study of Alternative Business Structures (ABSs) and their role in a changing legal market, commissioned by leading Partnership law firm, Fox Williams LLP and undertaken by legal research company, Jures, focuses on the variety of ABSs available; a changing Partnership model; and the arrival of private equity investment into law firms and legal services providers.
The research reveals that it would be wrong to dismiss a generally low profile start to the new regime (only seven licensed ABSs and a delayed start to the licencing regime by the Solicitors Regulation Authority) as evidence of disinterest by the profession in the legislation liberalising agenda.
54 % of the 100 respondents (of which 28% employed more than 201 staff and 34% had a turnover of more than £15 million) described as either ‘compelling’ or ‘very compelling’ accessing private equity or other third party investment to finance their’ firms’ growth as a reason for ABS conversion.
Nearly eight out of ten respondents (77%) identified access to finance (not available from partners or traditional bank borrowing) as either ‘important’ or ‘very important’ when converting to an ABS.
But such a radical structural change in the legal services market does not come without internal opposition. ‘Loss of control’ was identified as the biggest barrier to ABS conversion (62%), followed by resistance from partners (51%).
“The possibility of using the ABS model as an opportunity to refinance firms to enable growth or better facilitate survival in a newly competitive environment is clear to see from our research”, commented Tina Williams, senior partner at Fox Williams and a partnership law expert.
“And it is clear that the introduction of ABSs is acting as a catalyst for change in the profession as many of the new legal businesses, like the network and franchise operations, could have been put in place before the LSA,” she continued.
Other main findings from the survey, include:
- Almost half of all respondents (49%) said that they were ‘not confident’ is the SRA’s ability to manage successfully the ABS application process.
- Almost four out of ten respondents (39%) have already changed their management strategy as a result of the LSA. 14% has already changed their partnership structure.
- 70% of respondents identified improving the firm’s cash flow as either ‘important’ or ‘very important’ when considering an ABS conversion.
- One third of respondents were looking to spin off services through an ABS (33%) or alternatively looking to access external investment to fund growth (29%).
- One fifth of respondents were looking to incentivise staff through offers of private equity (20%).
- Almost one quarter of respondents (23%) were interested in being part of a collective membership organisation with other law firms ‘to share common services as part of the network’.
- Over one third of respondents (35%) described ‘ownership by a recognised brand’ as a ‘compelling’ or ‘very compelling’ reason for ABS conversion.
- Regulatory and tax issues topped the list of areas where specialist advice is needed (35% and 41% respectively).
The variety of business models of the early adopters of ABS - from consumer brand and volume conveyance through to the first foreign owned ABS and the first to be part of a stock exchange listed company – shows members of the profession willing to embrace change to gain a competitive advantage.
“The LSA is an enabler and is about new models for the provision of legal services not yet contemplated. It is very early days and we can expect a lot more innovation in the coming months and years”, concluded Williams.
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