Investec pitches external investment to top 50 UK law firms as ABS debate gathers momentum
Banking group and FTSE100 newcomer Investec is preparing to kick off a new wave of interest in external investment in UK firms with a high-level private summit in London this summer.
The bank has written to a handpicked selection of the heads of leading UK law firms, inviting around 50 to the summit on third-party investment.
Jonathan Harvey of Investec’s specialised banking division said the bank was interested in tapping into the potentially unprecedented rate of change in the UK legal market once regulations allow external investments.
Investec’s summit will be used as a litmus test of potential enthusiasm among the UK’s top managing partners for alternative methods of funding growth.
“We think it will be an interesting 12-18 months,” added Harvey. “I think everybody’s been in survival mode over the past 18 months, so maybe there’s a bit more confidence about the state of the economy.”
Tony Williams of consultancy Jomati, who in 2008 was hired by private equity house Lyceum Capital to target law firm investment, agreed that the trading environment had improved for the majority of firms.
But he added that the changed economic conditions had implications for the likelihood of external investment into firms.
“The private equity model’s changed to one of more equity and less debt,” said Williams. “The big problem with that is that, if there’s less debt, investors’ rates of return are likely to be pretty high. So firms need to have a very clear understanding about what they can do with that money that gives a higher rate of return to them and to the private equity people.”
Readers' comments (8)
Adel | 15-Mar-2010 1:02 pm
if you are still interested in the ABS debate
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PE Lesson | 15-Mar-2010 1:24 pm
We're in the middle of a revolution and some people are waking up to this, but not everyone. I see law firms taking a hard look at pricing structures as the need to be creative about the way legal services are being delivered is paramount even before the LSA comes in, but it won't stop there. The train is coming down the track!
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Anonymous | 15-Mar-2010 3:10 pm
Perhaps its just me. Putting aside the critically important content could this be about the worst piece of grammar i have ever seen.
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Tony Guise | 15-Mar-2010 3:42 pm
The introduction of the ABS will sort the businessmen and women from the business lawyers. Lateral thinking will be required to understand how lawyers can extract value from these New Opportunities rather than being extracted from the value chain.
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Matthew Longbottom | 16-Mar-2010 11:53 am
Our recent survey of Managing Partners shows that 93% of respondents think that law firms will float, however no one is willing to take the first steps yet themselves. The majority feel that large mid tier firms will be most likely to float. There is certainly enthusiasm in the sector, but many firms are going to watch and wait to see how others get on with it first.
Michael Bailey, Head of Professional Services Group at Vantis
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Private Equity houses aren't charities | 16-Mar-2010 1:25 pm
Let's be clear about this - if there are external investors in law firms there will be winners and losers. The winners are the investors and the losers are the partners.
Why? Because the current level of profit (presently all going to the partners) will have to be split - the first part going to the investors and the (reduced) balance to partners.
Before even thinking about taking investment a firm must be clear about what it would use the money for - and generate a greater return from the venture than that to be paid back to the investor.
What do law firms need to invest in? Production plants? R&D?
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Anonymous | 16-Mar-2010 2:32 pm
It's great isn't it - someone waves a large enough carrot at some ignorant lawyers and like a Pavlovian sloth they move inexorably towards doom.... Just how many managing partners have seriously understood what it means to be listed on a public market remains to be seen. If Investec can educate our management teams on the risks and dangers ahead, so much the better but, at the moment, this seems to be too much of a naked attempt at fee generation at a difficult point in the IPO cycle. The lack of comparator businesses (aside from Tenon) also seems indicative that the concept of an IPO is being oversold. From what I have seen of a number of law firms and their ways of working, firms would be better suited to taking private equity investment and then, if they can handle that and understand the requirements of disclosure to the markets, public funds.
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FeeSynergyUK | 27-Jun-2011 11:52 am
On a wider point, if it's all about cash flow then the best place to start is by dealing with the aged debtor lists. Having an external funder provider to look at spreading the cost of Fees and settling those O/S fee notes is the perfect place to start to bring in that hard earned cash. The client pays, why should firms act as unofficial bankers? We have such a scheme in place, feel free to contact me for details
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