Whilst the significant changes create opportunities for some, a failure to adapt can lead to declining market share and decreased profitability for others.
The rapid revolution within the accountancy sector is well documented as the introduction of online accounting software, automation, artificial intelligence and mobile applications becomes ever more prevalent and continues to revolutionise the industry in the way it services its clients. Though not as well reported, the legal sector is also going through a radical change which is leading to the decline of the 'traditional legal practice'. Such change is driving consolidation within the industry as firms seek to acquire economies of scale in back office and support functions in order to limit rising costs from increased rents, rates and professional indemnity insurance (PII) premiums.
The coming year is predicted to be challenging and is likely to result in higher numbers of mergers and acquisitions as firms look to address inherent financial weaknesses, consolidate the number of offices and merge back-office functions to reduce overheads, and focus on specific more lucrative sectors.
As well as the widely reported difficulties within the personal injury market as a result of Jackson Reforms which, will continue to reduce volumes and profitability over the next couple of years, the small to medium-sized enterprise market is also facing challenges. Challenging market conditions are exacerbated by competition from new entrants to the market. The top four accountancy firms continue to invest in and expand their own offerings which will take market share from established firms. New technology, such as artificial intelligence, will impact back office functions and transform the way legal services are delivered. The scale and global reach of these new entrants should not be dismissed. They have the resources to invest significantly in developing new services that smaller independent firms cannot do and already have the established client base with which to market their services.
The rise of the alternative legal sector also continues to build momentum where legal services typically provided by regulated solicitors are now being provided by charities, online portals or other non-regulated advisors. With little or no regulatory cost placed on many of these businesses, they are in a strong position to competitively price their services and operate efficient business models.
Lending within the sector has also changed over the last few years and this will continue to do so throughout 2019. There is less appetite from the main clearing banks to provide working capital facilities and this has given rise to new specialist lenders within the sector which look to advance against disbursements and bills of costs as opposed to a typical overdraft and term loan. The increased uptake of alternative business structures (ABSs) has also facilitated private equity firms and other private investors to invest within the sector, which, given the traditional ownership structure was not possible until the introduction of ABSs. These new investors into the industry are driving change and challenging traditional working environments as well as providing a greater emphasis on cost management than those of typical ownership structures. This trend will only continue within 2019.
Add in Brexit, a weak pound and a cautious lending environment and these are challenging times.
How Quantuma can help
Our professional services sector group strongly believe that it is important for owners and managers to act now to strengthen their current businesses and develop strategies to protect their interests in the future. We work with a variety of firms to explore the options available to them, and to plan and implement the changes they need to make.
As part of our work with businesses, our team are able to evaluate the options by providing a review of the current threats facing the firm and the options available, including both regulatory matters and cash flow pressures. In addition, where the Solicitors Regulation Authority are concerned, our team are able to provide regulatory reassurance and client protection planning, reducing the risk of regulatory action, including intervention and the impact of the statutory charge.
The following is a non-exhuastive list of the areas we cover when working within the professional services sector:
• Mergers: Our team work with you to understand your requirements and factors affecting your business in order to introduce potential merger partners as well as oversee merger talks with interested parties.
• Introductions: We have a network of firms who are interested in acquiring legal practices and can facilitate introductions that may be of interest.
• Financial forecasting and cash management regulatory guidance: We can support law firms with regulatory investigations and provide guidance in terms of regulatory outcomes.
• Business Structure planning: We are able to obtain regulatory authorisations for new companies to enable firms to seize opportunities, as well as provide protection and contingency planning for rainy days.
• Negotiating with key stakeholders: We are able to handle matters with secured creditors, unsecured creditors, key stakeholders and other partners and staff within a firm.
• Acquisition of the firm: Our team can arrange for an appropriate acquisition of your business to take place by way of a merger, solvent or insolvent transaction, either in whole or in parts.
• Contingency planning: We are able to provide support and guidance for contingency planning to include scenario planning. This is applicable in the event a distressed sale fails to complete.
We have worked with numerous firms both on a solvent and insolvent basis. With regards to some recent formal appointments, we are pleased to have worked with King & Wood Mallesons LLP, Burroughs Day Limited, Roberts Jackson Limited and Ince & Co LLP.