Mergers and acquisitions among the region’s law firms could intensify next year, according to new legal sector research, with nearly half expecting to be involved in deals.
The latest annual legal market survey from accountancy, investment management and tax group Smith & Williamson reveals that 43% of law firms in the South West are looking to acquire – or merge with – another firm in the coming year. 
The figure is a sharp increase on this time last year when just 28% said they expected to take part in deals. It comes as confidence among the region’s law firms remains high despite growing competition and any likely impact from Brexit, the report also shows.
Some 93% of South West law firms said they felt positive about the year ahead – although this is down on the record of 99% recorded in last year’s survey.
Full-service law firms see competition as likely to come from firms specialising in niche areas.
As a response to this, most firms believe a focus on specialist sectors as their greatest opportunity over the next two to three years, followed by UK expansion, lateral hires and investment in technology.
A number of mergers and acquisitions have helped reshape the region’s legal market in recent years – the latest being the tie-up between Bath’s largest law firm Withy King and City of London practice Royds to form Royds Withy King.
The merged firm employs around 450 people across offices in Bath – where it has two offices employing around 185 people between them – Oxford, Swindon, Marlborough and London, and is projected to generate revenues of around £33m in 2016-17.
Prior to the merger Withy King was a full-service law firm with long-established commercial, private client, personal injury and clinical negligence practices, while Royds was a single-office firm particularly well known for its retail property, commercial litigation, commercial, banking, employment, family and private client practices. Royds also brought a strong international client base to the deal.
Withy King had previously made a series of small, strategic mergers, including with Oxfordshire-based Whetter Duckworth Fowler in 2013 and Swindon’s Lemon & Co and Edward Pilling & Co in Oxford in 2014.
In 2014 Bath law firm Mogers merged with Dyne Drewett, which had offices in Shepton Mallet and Sherborne, to form Mogers Drewett.
Fiona Westwood, a partner at Smith & Williamson’s 200-strong Bristol office and a member of the firm’s professional practices group, pictured, said: “The right acquisition combined with an effective strategy can help firms to scale-up and develop market presence in a chosen niche or area, and so set themselves apart.
“The growing trend of relatively small acquisitions can also help to deliver benefits relatively quickly compared to a merger of two similarly sized businesses.”
She said differentiating a firm in a crowded marketplace was considered a major challenge, while focusing on specialist sectors could help firms strengthen their niche and so differentiate themselves.
“Like any brand, being able to explain and demonstrate why your service is different and superior to the competition is fundamental to taking market share,” she said.
“There are plenty of opportunities out there, but the growing strength of specialist firms, coupled with the arrival of new entrants to the legal sector means firms must fight hard to maintain market share and keep up with clients’ growing demands.
“The uncertain economic environment compounds all this. Ultimately, setting, deploying and executing a strong strategy is fundamental.”
The drop in confidence from last year’s 99% – the highest level recorded since Smith & Williamson first measured business confidence among law firms in 2001 – to 93% may not reflect nervousness caused by the EU referendum result, said Fiona Westwood.
She believes confidence has fallen further since the survey as 68% of law firms thought the short-term impact of Brexit on their business would be negative. Some 44% also thought leaving the European Union would have a negative impact on the international standing of English law.
