October 29, 2012 / 12:01 AM / in 5 years

UK legal takeovers help firms maintain earnings - survey

* Top firms saw gross margins over 60 percent

* Report sees mid-tier legal firms under pressure

* Larger firms expect overseas growth

By Dasha Afanasieva

LONDON, Oct 29 (Reuters) - Takeovers and new hires helped UK law firms maintain profits in the year ended June 2012 despite a steady decline in the earning power of individual partners, a survey found.

Of the top 100 British law firms, four in five increased their income in nominal terms over the year, largely through acquisitions and hiring partners who bring in clients, PwC, a professional services firm, said in a report.

The earnings boost came despite average UK fees per partner having fallen by over a fifth since 2008 as economic uncertainty has suppressed corporate activity and, in turn, the demand for legal services.

“Against a difficult backdrop, 2012 could be characterized as a solid year for the legal sector, with the gap between best and worst performing firms beginning to widen further,” said David Snell, partner and leader of the professional partnerships advisory group at PwC.

The UK legal system, which is often the choice of international firms for takeovers or disputes, is an important bellwether for corporate activity.

The PwC report found the top 10 firms by income, which account for 44 percent of total income, recorded better UK results thanks to tight management of fees and an ability to charge premium rates.

Mid-tier firms, however, were squeezed by larger rivals as well as smaller firms and new entrants, according to the study.

Larger British law firms expect their overseas business to grow in the coming years, according to the report which cited Indonesia, Korea, Africa and South America as potential growth markets.

Half of the top 10 firms expect to acquire overseas players within the next three years.

So far, 2012 has seen moderate growth in international revenue and profits, with a number of major deals in Australia, China, Singapore, Canada, South Africa and the Middle East, the survey found.

New legislation allowing law firms to seek external investment by converting from partnerships into so-called Alternative Business Structures (ABS) has provided a new source of funding.

PwC said that ABS has already and will continue to entice new entrants into the British legal market.

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