Despite doubts about track record of firm mergers, partners expect a wave of consolidation. Sofia Lind reports

The UK legal market is too fragmented and needs to go through substantial consolidation, according to new research from Legal Week.

Almost three quarters of UK partners (72%) taking part in Legal Week's latest Big Question survey said there needs to be significantly more consolidation in the sector, including 22% of respondents who stated that the legal market is far too fragmented. In contrast, only a handful of respondents (13%) said there was no need for more consolidation.

The findings, which come in the wake of a number of significant UK law firm tie-ups, including the forthcoming merger of Pinsent Masons and McGrigors and last year's unions of Davies Arnold Cooper and Beachcroft and Barlow Lyde & Gilbert and Clyde & Co, show many partners believe such unions are necessary in order to deliver economies of scale.

Clydes chief operating officer David Jabbari, previously chief executive of legacy Barlows, predicted that mid-tier firms offering volume services are more likely to carry out mergers than larger rivals.

He said: "The mid-market will divide more clearly between those firms that run volume services and those that do not. There will be consolidation of volume services, which will force difficult questions for those firms dabbling in volume but which do not have a differentiating 'high end' to their practice. The very largest firms are unlikely to consolidate any more than their natural pattern of ambitious cross-border mergers over the last 20 years."

Two thirds of respondents (66%) said that achieving a certain level of scale – equivalent to a firm sitting within the UK top 30 with revenues of at least £100m – was either 'important' or 'very important' in order to be well positioned in the legal market. Only 23% did not consider size to be important, with more than half of respondents (52%) believing that their own law firms need to grow substantially. A further 27% said their firms needed to achieve 'a little' more scale.

Only a fifth of those responding said expansion was not necessary, with some stating their firms were already too large to be effective.

Taking into account the need to achieve greater size, around 41% of partners said it was either 'likely' or 'very likely' that their own firms would go through a merger within the next year or two, with a further 31% stating this was a possibility. Only 28% thought a combination at their own firm was unlikely.

Despite the large number of mergers taking place in the UK as well as internationally, where firms such as Ashurst and Herbert Smith have either achieved or are looking at tie-ups in Australia, fewer than 20% of respondents said that law firm mergers were effective. The majority (63%) said they offer at best a mixed track record, with only a further 20% believing them to be either 'effective' or 'very effective'.

Stephenson Harwood chief executive Sharon White said: "It is always difficult to judge from the outside whether a merger is a success or not, but some combinations have seemed to make more sense than others strategically. A merger is not a part of our strategy. We never say never, if we had a good offer we would look at it, but for us it is not a strategy in its own right and certainly not just for the sake of scale."

Nicholas Cheffings, the newly-appointed chair of Hogan Lovells, which was formed in May 2010 through the merger of legacy Lovells in the UK and Hogan & Hartson in the US, said: "The merger route is not a case of one-size-fits-all. Whether a firm should seek this route is driven very much by what it is trying to achieve. Not every large UK firm wants or needs a global platform.

"For us, the key benefits derived from our transatlantic merger has been the opportunity to enhance our platform to boost our appeal to an international client base."

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Partners on consolidation

  • 72% of respondents believe the UK legal market needs to go through 'substantial' or 'considerable' consolidation
  • 41% believe a merger at their own firm is 'likely' or 'very likely' in the next two years
  • 29% believe a merger at their own firm is 'unlikely' in the next two years
  • 66% state scale is important to secure positioning in the legal market
  • 19% think law firm mergers are effective