LG weighs up flotation as firms open eyes to Legal Services Bill opportunities
25 June 2007
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Just because you can do something, does it mean you should? That, in essence, is Lovells' line on whether or not to seek a float or an injection of external capital once the Legal Services Bill becomes law.
As the firm's senior partner John Young put it: "I'm very much in favour of there being an increased range of funding possibilities for law firms available, but it's a big leap from there to say we might look at doing it ourselves."
Young's argument may prove to be the prevailing one until 2010 and beyond. This is still a hypothetical argument and nobody knows for sure whether UK firms really will go public. Young is simply arguing for the ability to do so, regardless of whether Lovells ever actually does.
But there is a growing body of evidence to suggest that numerous UK firms are in fact seriously considering the options that should be available to them at some point over the next two to three years. And The Lawyer's exclusive research suggests that a number of these will float.
In June last year the questionnaire for The Lawyer UK 100 Annual Report 2006 included a new question, added following the publication of the Clementi Report. For the first time we asked firms for their views on Clementi's proposals that UK law firms should be free to attract external investment. Were they in favour, neutral or against?Last year barely a single firm in the top 100 said it was 'in favour'. This year, the proportion of firms in favour is currently running at around 30 per cent. A significant proportion of the remainder have also either ticked 'neutral' or left the question blank, meaning the eventual number in favour could be far higher.
Along with the fact that a growing number of financial institutions are currently banging on the doors of UK firms to gauge interest in a deal of some form, this empirical evidence lends weight to the growing impression that a raft of firms is in favour of seeking external investors.
Speechly Bircham managing partner Michael Lingens revealed that, while most firms had been keeping an eye on developments, things had moved "a little bit further with us".
Lingens said he and his partners have had conversations with a handful of investment banks and private equity houses. "In a very crowded mid-market, the issue is, how do you differentiate yourself? One route might be an IPO."
Over at Irwin Mitchell, many people's favourite for a float, managing partner Howard Culley said there is "a severe danger" that the development of the legal market in the face of increasing competition from large corporates "will be restricted by the partnership structure and the inability to raise external capital".
Another in favour is LG. Senior partner Bill Richards said the firm has had approaches from "fewer than 10, but a lot more than one" organisations.
"We're interested to see if raising external capital would give us the opportunity to improve our business in a way that our current model doesn't give us," said Richards. "Certainly the added ability to incentivise people, not just partners and not just lawyers but all staff, is interesting."
Lovells' Young, however, said that, while raising debt finance in the current market is no problem for any successful firm, issuing equity would mean sharing ownership.
"In industry people don't do that unless they really need to," added Young. "We're not seeking to do that and can't see why we ever would."
The reason Lovells ticked the box marked 'in favour', he said, is that what he is really in favour of is flexibility and freedom. "Every other professional group has these freedoms," said Young. "Why are lawyers so different or so in need of protection that they don't?"This level playing field argument is echoed, with a Celtic twist, by the co-managing partner of another firm that said it was in favour of external equity, Dundas & Wilson.
Alan Campbell, managing partner of projects at Dundas, said the failure so far of The Law Society of Scotland and The Faculty of Advocates to offer Scottish legal consumers the same regulatory reforms as in England and Wales (a situation that led the consumer association Which? to file a 'super-complaint' with the Office of Fair Trading in May), is "potentially anticompetitive".
"We've stated we support the question put by Which? and see no reason why we should be different," argues Campbell. "The markets and the differentiations between different groups of professionals are blurring. If you regulate us to death you'll find that the unregulated professionals will come in at an advantage and that will be anticompetitive. Scotland's got to get off the pot and say whether it's in favour or not."
In England, an increasing number of firms have already done so.