The future for legal costs firms?
The mantra currently running through the legal profession is:
This is a big issue in the field of personal injury with the advent of ABSs. This view is not universally held, there are those such as Kerry Underwood who passionately believe in the traditional law firm model.
Nevertheless, the “get big” approach is currently gaining much traction with the legal press regularly reporting some of the big players busily gobbling up other law firms.
This trend is also beginning to be seen amongst costs firms. In part, this is of little surprise with the combination of the Jackson reforms and major legal aid changes. When the Jackson Report was first published I predicted: “Firms will be looking for mergers and management buy-outs for what remains of these businesses, if anything”. The volume work will start to dry up over the next six months and we will then start to see a flurry of such activity.
The shake up to defendant costs firms will be rather less than for claimant firms. Insurer panel firms have already seen significant consolidation over recent years. Although there will no doubt be further consolation as volume work starts to decline for defendant solicitors, the pace will be much less than for claimant firms.
Whether acquisitions of competitors is a good thing is a questionable point. Mark Feeney, writing in the Solicitors Journal, highlighted some interesting statistics from:
“a KMPG study which looked at a series of major PLC acquisitions between 1990 and 2000. Only 17 per cent successfully created value, a third appeared to ‘break even’ and a half were unsuccessful and caused losses. This study mirrors many in that acquisition appears a quick and easy way of developing a business but all too often it seems the opposite occurs.”
How many looking for aggressive takeovers will discover they have been sold a pup?