Moderate

Professional Services

The sector has weathered the COVID-19 pandemic, a focus on costs and liquidity continues to be critical as the economy recovers.

Sector trends & challenges

  • Technology transformation and consolidation

    We expect COVID-19 to accelerate the trend towards sector consolidation during Q3 and Q4, with new national and international partnerships being created in order to capitalise on the economic recovery.

  • Liquidity and cost reduction

    Businesses must adapt their operating models to the technological changes in the market to remain competitive. COVID-19 has accelerated the shift towards remote working and flexible working.

  • Profitability challenges

    Pricing pressure and technology changes squeezes margins amidst the rise of fixed and contingent models for fees. In addition, increased regulation in the form of new SRA accounting rules and ongoing regulatory reform is increasing costs.

Sector rating profile

Professional Services

We expect COVID-19 to accelerate the trend towards sector consolidation, with regional firms consolidating into national practices and going on to form global alliances. Firms with strong balance sheets will continue to be acquisitive and continue to poach key talent.

A significant reduction in revenue has been seen across the sector due to COVID-19, though there have been some pockets of intense activity, namely real estate. Cash preservation has been critical throughout this uncertain period and we foresee a significant focus on cost and maintaining liquidity. Working capital management is a priority, with a focus on reducing ‘lock up’ and maximising creditor payment terms to support both investment and liquidity. Pricing pressure is further squeezing margins amidst the rise of fixed and contingent models for fees and downward pressure on hourly rates. In addition, increased regulation, in the form of new SRA accounting rules and ongoing regulatory reform in the personal injury sector, is adding further administration.

It is evident that greater home working will reduce the need for prime office space in the medium-term. We anticipate a sale of non-core assets and discontinuation of less profitable service lines as strategic objectives are reviewed. We are already seeing larger corporates starting to rebuild in-house legal capabilities as a way of reducing costs.

The recent focus on ‘cost out’ programmes and process improvements through technology to improve efficiencies could support profitability and cash generation in the longer-term. Locking in these operational savings whilst continuing to invest in IT and innovative services will be a recurring theme in the sector.

Find Your Expert

Rick Harrison is Interpath Sector Lead for 'Services'. This includes Professional Services as one of two core segments. Chris Wise leads Interpath's approach to the Professional Services sector nationally. For a full list of our senior people with experience in this sector use the button below.

Our senior team