Is Slater's IPO a model that UK firms could follow?
3 March 2008
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Ambitious law firms are nothing new, but six mergers in nine months is plenty by anyone's standards. However, Australian firm Slater & Gordon is not just a firm with audacious growth plans - it is the world's first firm to fund these plans with a stock market float.
Slater's A$35m (£16.46m) IPO on the Australian Stock Exchange in May last year has not only allowed it to acquire six firms (with others still to come), it has also bankrolled lateral hires, increased advertising spend, and enabled the firm to scale up its large volume of capital-intensive, conditional fee arrangement (CFA)-based plaintiff work.
And in a ringing endorsement of the firm's decision to float, Slater announced last week that year-end profit (and note that this is profit, not turnover) was up by more than 56 per cent.
Before we get carried away, it's important to recognise that this still only leaves the firm with a total profit pool of A$6.9m (£3.24m) - small beer by the standards of international firms, and not that much more than top-earning partners at Wall Street or magic circle firms expect to take home individually. The question, however, is whether Slater's experience could be repeated on a larger scale.
That question is especially pertinent to law firms in England and Wales, which were given the green light to seek external funding or to float by the Legal Services Act 2007.
Those north of the border, meanwhile, will be following closely a recent consultation by the Law Society of Scotland on allowing law firms to float, the findings of which will be presented to the Scottish Parliament in May.
For firms handling large amounts of capital-intensive, volume type work, the appeal of a float is obvious. As it did with Slater, an IPO will allow them to scale up their volume operations, particularly on CFA-dependent work such as personal injury claims. For mid-tier firms with designs on the stratosphere, meanwhile, an IPO could provide them with the capital necessary to make big pushes on London, for example, or to open those overseas offices, or simply to tool up with a raft of lateral hires.
But for big-bucks international firms, a capital injection will not prove to be a motivation to float. As opposed to cash, what an IPO could offer them instead is the chance to convert their traditional partnership models - cosy perhaps, but as often just unwieldy and prone to factionalism - into businesses as streamlined, decisive and adaptable as any good blue-chip company.
And it is the threat to the partnership, of course, that terrifies many lawyers.
However, Slater chief operating officer Mike Feehan says "it's simply business as usual" for Australia's largest plaintiff law firm. Clients appear unconcerned by the move and enquiries remain strong, he says.
And there is anecdotal evidence that there has been an increase in enquiries from potential corporate clients, "as if the listing has freshly validated the commercial credentials of the business", says Feehan.
The main difference between life pre-float and post-float, Feehan adds, is that the firm now has extra disclosure requirements and its decision-making is more transparent - the work of a five-member board, which includes three executive directors and two independent non-executive directors. Over time, though, he adds tellingly, the board will evolve into a majority of independent directors.
As well as the threat to independence, the other point worth noting is that, although Slater's IPO has furnished dizzyingly quick results, the float was by no means something the firm undertook casually.
Rather it was the result of years of planning and consultation and an exhaustive management review, which took place some five years earlier, during which time the firm considered both traditional funding options such as bank borrowing and partner funding and talks with private equity funds.
With the decision finally made, Slater & Gordon Ltd issued 35 million shares at A$1 (47p) each, which rose in price to A$1.40 (66p) by the close of play that day and reached a high of A$1.97 (93p) within weeks.
Feehan argues that "any firm that has a sustainable business model, has the management capacity to deal with the demands of being publicly listed, isn't frightened by transparency and has a call for capital" could do the same. But that still sounds like a lot of ifs.