One year after the Legal Services Act received royal assent, independent research has revealed UK law firms' growing interest in the use of external finance.

A survey of 102 law firms - of which three quarters are part of the UK's legal top 100 - reveals that more than four in five expect firms to join forces with other professionals, slightly up on previous years; nearly three quarters expect their peers will need to raise external capital, whereas last year the equivalent figure was two thirds.

The survey, conducted for Smith & Williamson, an accountancy and professional services firm also explored individual firms' ambitions in terms of raising finance: more than one in four of respondents expect to seek external finance within the next two to five years. Of those who anticipate raising external finance, more than a third would consider a public listing and over half would look at private equity or venture capital.

Giles Murphy, head of assurance and business services at Smith & Williamson, said: "It seems clear that law firms will be combining with other professionals, transforming forever the nature of the legal profession. From 2009, the first aspects of the Legal Services Act come into force when non-lawyers will be able to become partners in solicitors' practices. We anticipate that it will be increasingly common that financial directors or similar will become equity partners and it will remove one of the potential barriers for non-lawyers to take on managing partner roles."

Of those who would seek external capital, 10 per cent would be looking to secure up to £50 million (about $77 million), with a third looking for up to £5 million and  a quarter up to £20 million. 

The most common reason was to fund the long-term development of the firm, closely followed by the recruitment or acquisition of teams and by the opportunity to develop new sectors. It was once thought that the Act would simply provide a route for partners to sell-out, but the survey confirms this is reducing in importance for firms, quite possibly as potential investors emphasise their lack of interest in such a model.

Mr Murphy said: "While the regulations allowing alternative business structures (i.e. whereby law firms can merge with non-legal practices) may not be in place until 2011, there are already a number of firms starting to make the necessary changes to their ownership, remuneration and governance procedures to prepare themselves. Through various forms of convertible debt from non-banking organisations, firms are changing their business structures so they are well-positioned to take advantage of the regulations the moment they become operational."