Almost a third of North law firms believe they are likely to merge within three years, a survey of high profile companies has revealed.
Economic experts at PwC carried out their latest survey of the Top 100 law firms, which found that 29% of law firms in the region think it is very likely they will merge by 2016, while 37% are very confident their firm will achieve revenue growth this year.
However, companies are very much split on whether the sector can grow in the next three years, with 50% confident it can expand and 50% not very confident in growth.
PwC said that, as many global economies are on the up, some regional law firms will be well placed to take advantage.
However, it said that pricing pressures, effective utilisation of fee earners and cost reduction challenges have taken such a huge toll on others that their medium term survival is at risk.
The survey shows 2013 has been a watershed year for the legal sector in the North, with merger activity – including the May merger of Bond Pearce and Dickinson Dees to create Bond Dickinson – and restructures consolidating and polarising the market, from those that are growing to those that are struggling to survive.
However, the region remains optimistic and is the most positive of all the English regions surveyed.
A total of 37% firms very confident they are on track to see revenue growth this year, compared to just 20% in The Midlands and 26% in London.
Bill MacLeod, incoming senior partner, PwC Newcastle said: “Against a challenging backdrop, 2013 could be seen as a turning point for the legal sector as certain firms remain resilient and grow, while others continue to struggle, with the gap between best and worst performing widening further.
“The legal sector has come under increased scrutiny from banks and the sector’s regulator following a number of well-publicised law firm insolvencies, mergers and acquisitions in the region.
“And this trend is set to continue with further consolidation of the market very likely.”
The PwC survey also notes that certain northern firms achieve higher profits per equity partner (PEP) than any other region outside of London, with 13% receiving £501,000 to £750,000.
Nationally, PEP for the Top 10 law firms averaged £1m, up 6.1% on 2012. The trend in net profit margins remains a concern for smaller and regional law firms with one third recording net margins of less than 20%, and a number approaching single figures.
Productivity in law firms, relative to the height of the market in the mid-2000s, remains low and consequently pressures remain on both headcount numbers and salary levels.
MacLeod added: “Continued focus on cost reduction and innovative delivery is required across all firms to maintain profitability in a highly competitive UK market. We expect many firms to look carefully at their strategy, focusing on whether there is a sustainable presence in each region of operation. Looking ahead and despite some encouraging signs of a pick-up in activity, it is clear firms remain concerned about continued economic uncertainty and the changing needs and behaviours of clients.”