Concerns M&A headwinds will cut into UK law firm profits rises

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Many BigLaw finance directors are worried that M&A headwinds will affect how profitable their law firms are.
 
According to data from Thomson Reuters Legal Business’ ninth annual survey, 24% of the UK’s top 100 law firm finance chiefs expect a slowdown in the M&A sector will negatively impact their law firms’ profitability.
 
This is a marked increase from the 8% of finance directors last year who expressed the same sentiment.
 
Earlier this year, another Thomson Reuters study revealed that M&A volumes were down 18% year-over-year in the final quarter of 2016.
 
“The buoyancy in M&A transaction volumes last year was a key driver of profitability for law firms, but further growth was in question even before the Brexit vote and will be even more so now,” said Reuters’ Samantha Steer.
 
“M&A transactions are a vital source of work for law firms, both in themselves and because they generate a significant amount of workflow across a range of other practice areas. If fears that corporate finance activity is weakening are realised that could rattle the sector,” said the director of Large Law Segment for Thomson Reuters UK&I Legal Business.
 
She noted that once fears corporate activity is weakening is confirmed, the sector may be rattled.
 
Financial directors also worried that downward pressure on fees will remain a major threat to law firm profitability with 72% of those surveyed expressing the concern compared to 60% in 2010.
 
Cost overruns on fixed-fee work was also a big concern with 40% saying this is poses a “high risk” to profits.
 
Meanwhile, financial directors see regulatory and compliance as well as technology to be the fastest-growing sectors this year. The study revealed that 48% see a boost in regulatory and compliance work while 28% believed an increase will be seen in the technology sector.
 

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