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M&A boom drives UK high in borrowing

Posted by: Laurence Simons 24/08/15

The recent boom in mergers and acquisitions work has led UK law firms to borrow increasingly vast amounts of money. Lending by banks to fund expansion, retention initiatives and technology investment has jumped by 28% since 2010 to £7.4bn.

The last time borrowing was so high, firms were caught in a reaction to the financial crisis, and were frantically firing staff and cutting rates to achieve lower mandates. Some organisations, particularly in the US, even collapsed during the crisis – most notably New York-based Dewey & LeBoeuf which filed for Chapter 11 bankruptcy protection in June 2012 with liabilities of $315m. In addition, the firm saw three executives trialled for conspiring to hide the true nature of the firm’s finances from its banks and creditors.

The managing director of LDF, the finance provider that conducted recent research on the topic, has commented that the figures “are a sharp turnaround from the recession” and that “it’s encouraging to see law firms able to access the funding they need to invest and grow”. British practices have had solid financial results over the last year and many seem to be expanding rapidly. This has led to a rise in associated pay in order to recruit and retain top lawyers – and compete with law firms in the US. Many firms are now looking towards technology as one of the biggest investment areas for the next year.

The last twelve months has seen a particularly high number of law firms expanding their international reach. This year, Allen & Overy opened offices in Barcelona, Johannesburg and Toronto, and rumours are that South Korea could be next on the agenda. Taylor Wessing opened two new US offices, Pinsent Masons rooted branches in Sydney and Melbourne and Clyde & Co expanded into Dubai and Qatar. With so many big firms internationalising, and more money behind initiatives such as staff retention and technology, it is no surprise that competition for positions is fierce. Perhaps demand for skills such as fluency in foreign languages, knowledge of international markets or even just the desire to travel may be on the horizon, but for now UK lawyers are reaping the rewards of a strong M&A market.