For the fourth consecutive year, business confidence is on the up. In fact, 94% of all the firms we polled were either very or reasonably confident about the business outlook for the coming year compared to 88% last year, 83% in 2003 and 78% in 2002. There also appears to be increasing interest in acquiring teams from other practices. Meanwhile, a third of the firms we spoke to had converted to LLP status.
However, two clouds are looming on the horizon. First, the Age Discrimination Act which applies from 1 October 2006; and secondly, the issue of staff retention. Both are key areas for professional firms of all sizes.
Age discrimination
All but one of the firms we contacted specified a retirement age in their partnership/LLP agreement. Similarly, just over a third of firms reported that promotions to partner level were infl uenced by age and seniority and a half said that these factors influenced salary levels.
Although these statistics may not be surprising, the introduction of the Age Discrimination Act later this year will make it illegal for employers to differentiate on the basis of age. In view of this, professional firms should urgently review their partnership or LLP agreement to conform to the new rules. Perhaps surprisingly, however, less than half of the firms we interviewed were aware of the need to change their agreement.
Consolidation continues
Virtually all those we interviewed (97%) thought the level of merger activity would increase or remain the same in the year ahead; and as if to confirm this, 90% of this year’s respondents said they would consider an acquisition.
We also asked respondents if they had approached or been approached by another firm with a view to a potential merger or acquisition in the last two years – about three quarters said they had!
There appears to be particular interest in acquiring specific practice areas from other firms, and almost half of property firms said they had acquired a team from another business in the last year. 32% of law practices claimed to have done this.
Most firms are open to the idea of merger – but the key to success is getting the right cultural match. It also requires the careful integration of business practices which in turn needs an appreciation of the respective fi rms’ business rationales.
Our survey reveals growing interest in acquisitions and this is arguably because it is far easier to integrate a profi table practice area into the culture of a firm than merging two large organisations. Acquiring small, established teams, usually feeds positive results to the bottom line more quickly.
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