The number of US firms openly willing to explore the possibility of a UK merger has increased amid new evidence that many are struggling to make an impact in the tough London legal market.

The latest annual Legal Week survey of more than 50 of the largest US firms in London has found that well over a third (39%) of respondents are willing to consider a tie-up with a UK firm.

Last year, just over a quarter (29%) of the respondents said they would be open to merging with a domestic firm.

The finding is a clear indication yet that, despite a series of big-name partner hires by firms such as Weil Gotshal & Manges and Shearman & Sterling, many firms now see a UK merger as their best chance of cracking the City market.

Among the firms that concede they are open to a merger are Orrick Herrington & Sutcliffe, Winston & Strawn, Dechert and Hunton & Williams. The renewed interest comes against a background of surging profits among the top 50 UK firms, which recorded an average profits rise of 19% in the last financial year.

The survey also recorded a significant decline in the proportion of work US firms' London offices are sourcing from the City market compared with last year. In 2005, almost three-quarters (71%) of the respondent firms said they sourced more than half of their work from their City offices. This year, that figure has fallen to well under two-thirds (61%).

But the survey also demonstrated the commitment of the US firms to the London market, with 96% of US firms in the City pledging to increase the headcount in their London offerings over the next 18 months, and more than half (63%) planning growth of 10%-25%.

Firms are also taking a longer-term view to recruitment in the UK, with more than half of the respondents (51%) now taking on City-based trainees. Latham & Watkins, Hogan & Hartson, Morrison & Foerster and Paul Hastings Janofsky & Walker are all taking on trainees for the first time this year.

Commenting on the findings, former Winston & Strawn banking partner Neil James, who joined CMS Cameron McKenna earlier this month, said: "More firms are seeing that if you want to operate in a big sophisticated market like London you really need to have strength in depth, and a quick way of getting that is to do a merger."

Chris Hale, head of corporate at Travers Smith, said: "There are more than 100 US firms in London and I think a lot of them thought it would be easier than it has turned out to be."

Additional reporting by Georgina Stanley. See page 28 for US firms in London feature.

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