UK lawyers may see a ‘Brexit Bonanza’ surge in demand as clients seek advice on changes to legal and regulatory environments. Since 2012, law firms have been allowed to form 'Alternative Business Structures' and take on outside investors. Adoption has been steady but not stellar. The overlap of these two market conditions is likely to push both lawyers and investors to explore new marriages. There have been early successes but also cultural clashes.
Part 1: The post referendum legal market:
Pre-referendum, a lot of noise was generated about the impact of Brexit on the legal sector. Much of it was negative: “Law firms will bear the brunt of Brexit, lawyers warn” declared a column in The Telegraph. Two factors dominated the pro-remain argument:
Three months post referendum, a more detailed look by investors may be warranted.
Whilst there is still justified uncertainty about the general economic drivers of legal services, there has been no obvious boom or bust in either UK economic activity or 'deal flow'. GDP forecasts were slashed and then re-adjusted upwards. Predictions of a major crash in deal flow seemed premature as major deal announcements continued, probably most notably UK chipmaker ARM being acquired by Japan’s SoftBank for £24bn. SME deal flow has also held up according to the Cass/Lyceum Capital UK Growth Buyout Dashboard.
The ‘loss of passporting’ is less of an issue for investors as it is for lawyers. It is indeed a possibility that lawyers could lose the right to practice across the EU should the UK leave the single market, and lawyers’ adverse reactions to this risk is understandable. However, from an investors perspective only, does it really matter if a lawyer is registered and based in Dublin instead of London to deal with EU specific legal issues if he or she still works for the same firm?
Investors should also be considering an additional market force that has subsequently gained prominence - a Brexit driven demand for legal services. Post referendum, major law firms have set up Brexit hotlines, teams and departments and are now actively marketing these services to advise clients on the inevitable changes to legal and regulatory environments. International trade, corporate restructuring, commercial, contractual, employment and immigration law are only some of the obvious areas that will require a boost in legal advice. Joseph Andrew, global chairman of Dentons, was quoted as saying “It’s an unfortunate truth that it is bad for business and a bonanza for lawyers”. Speaking on CNBC, Pippa Malmgren (@DrPippaM) jokingly described Brexit as the ’solicitors full employment bill’ (or words to that effect). She went on to build on this comment in a later article, predicting "that many fortunes will be made in the British legal profession".
In part 2 of this blog we will explore the environment for potential investors in legal services and the implications of these 2 market forces being at work concurrently.
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The views expressed in this article are those of the author at the date of publication. The contents of this article are not intended as investment advice and will not be updated after publication unless otherwise stated.