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The first of a series of extracts from Climate Change, a report on the impact of the Legal Services Act published by accountants Baker Tilly, considers what kinds of law firms and investors will be interested in taking advantage of alternative business structures. And just what would a big law firm do with a £50m cash injection?

Over half of all law firms have either lost business to a non-lawyer competitor or expect to in the future, a new survey from accountants Baker Tilly has revealed. Some 29% of firms with 25 partners or fewer had already lost business to a non-lawyer competitor, compared to 12% of larger practices.

There will be no ‘big bang’ in legal services in the near future and if solicitors are waiting for it before deciding on their firm’s survival strategy, they risk being overtaken by events, a leading solicitor has warned. Neil Kinsella, managing partner of national law firm Russell Jones & Walker, also said that firms could be “dancing with the devil” by accepting private equity investment.

Most law firms do not have the balance sheets or the systems to appeal to venture capitalists but those who can pull off deals may see some major benefits, it was claimed yesterday. Sara Hutton, a relationship manager at Royal Bank of Scotland, said venture capitalists would want a return of 20-30% and an exit in three to five years that is “reasonably visible” now, such as a flotation, management buy-out or trade sale.

Jeremy Black, associate partner in Deloitte’s professional practices group, begins a week-long look at the issue of external investment in law firms by considering the forces of change that will encourage them to investigate the options available.