The UK legal market is set for a radical shakeup with over 100 law firms expected to attempt a merger or acquisition in the next 12 months, experts predict.

Commenting on a new survey from BDO Stoy Hayward, Tony Williams, founder of Jomati, a legal consultancy, said: “The legal industry could witness over 100 firms merging in England over the next year, either with regional, national or foreign firms.

“This may sound bullish but market conditions will force as many as 25 per cent of smaller firms to merge, a significant number of very small firms will cease trading and between 10 and 15 per cent of medium-sized firms will also look to merge.”

The BDO research found that 68 per cent of law firms surveyed had discussed a merger with another firm in the past year and 43 per cent expect to be involved in a merger in the next 12 months.

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This month national firm McGrigors said it was looking for a merger or acquisition in London while Watson Farley & Williams announced a tie up with Oldenbourg Plus, a German corporate firm.

Although the survey that the bulk of merger activity is likely to affect small and medium-sized practices, Mr Williams, a former managing partner at Clifford Chance, warned that not all large law firms will be insulated from market conditions. He expects to see “a handful” of mergers at the bigger end of the market.

The changes come ahead of the implementation of the Legal Services Act which will allow non-lawyers to own and operate law firms from 2011. The Act will also allow law firms to take on outside funding such as private equity investments and is expected to prompt a significant overhaul of the UK legal market.

Colin Ives, a partner in BDO’s professional services team, said: “In the past there has been a tendency for law firms to make knee-jerk reactions and rush into a merger to try and fix a current problem.

“The most important issue for firms considering a merger is to ensure that they get the right cultural and financial fit before any deal is agreed. Merger for mergers sake will just create one larger failing firm rather than two smaller ones.”

The survey found law firms more confident about their own performance than the wider economy with 48 per cent forecasting a slight recession in the UK and 30 per cent predicting the economy would stagnate.

Despite this over half (54 per cent) of law firms expect to grow profits by over 5 per cent in the following year with 26 per cent predicting profits to rise between 5 and 10 per cent.

The survey also found that law firms remain reliant on bank loans for funding. Forty-six per cent of those that intend to raise money in the next 12 months would do so via a short-term overdraft and 59 per cent through a bank loan.

Mr Ives said: “It is worrying to see that law firms still anticipate obtaining increased funding from banks through loans and overdraft facilities. Whilst banks are still keen to lend to the right firm, the credit crunch has caused them to be more discerning in their lending decisions and law firms should prepare for banks getting even tougher in the current months.”

The survey was conducted by Network MP, a group of managing partners at professional services firms, on behalf of BDO and Jomati.

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