October 21, 2012 / 11:01 PM / 5 years ago

UK law firms shun private equity investment

LONDON, Oct 22 (Reuters) - British law firms are unlikely to sell to private equity investors, a survey said on Monday, dealing a blow to the buyout firms that are searching for deals in the sector.

Some 77 percent of law firms polled by legal publisher Thomson Reuters Sweet & Maxwell, said they do not think private equity is an appropriate source of funding for their businesses.

Private equity firms have been eyeing the legal industry, worth nearly 25 billion pounds ($40 billion) a year in fees, since new ownership rules came into force earlier this year.

Law firms are now allowed to seek external investment by converting from partnerships into so-called Alternative Business Structures (ABS).

Some 20 law firms have converted to ABS so far. But only one, Parabis, has taken private equity investment, selling a controlling stake to UK-based Duke Street.

“Some partners feel that pressure from shareholders to deliver short-term returns would radically alter the culture at their firms,” said Teri Hawksworth, managing director of Thomson Reuters Sweet & Maxwell.

Private equity firms typically buy underperforming companies to shake them up and sell at a profit.

Some lawyers have also expressed concern that allowing fee-earners to cash in their stakes in the business could disincentivise others, Hawksworth said.

The survey also showed that 88 out of the 100 biggest law firms thought raising money by selling shares on the stock market was inappropriate for them.

Lawyers’ preferred methods of funding were bank loans, supported by 85 percent, and alternative finance - such lending secured against future incomes - which 50 percent liked, the survey said.

Part of Thomson Reuters, Sweet & Maxwell publishes legal texts and encyclopedias, and operates online legal databases Westlaw and Lawtel.

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