UK firms consider IPOs to retain staff

A growing number of UK law firms are contemplating a listing, according to the corporate finance house behind the 2001 AIM float of patent and trademark practice Murgitroyd & Company.

Noble & Co, the advisory and broking arm of investment bank Noble Group, has based its comments on the results of independent research it commissioned into the professional services sector.

This found that law firms offer investors a strong investment case, including high returns on capital, good cashflows and high-quality earnings.

Neil Shah, director of research at Edison Investment Research, which conducted the survey, said a stock market listing could have the additional benefit of locking in key talent with share options.

“The number one issue for many law firms in the current, highly competitive market is retaining and incentivising associates,” said Shah. “One way of doing that would be to float and tie people in with equity.”

John Llewellyn-Lloyd, chief executive of Noble & Co, said there was increasing pressure in the UK market for firms to consolidate, with the traditional partnership structure is becoming “less relevant”, particularly for smaller and mid-sized firms.

“Listing allows them to improve their access to capital, fund expansion overseas and provide more transparent and direct financial motivation to staff,” added Llewellyn-Lloyd. “These combined factors are encouraging quality management teams to consider listing so they can compete against the dominant players in their markets.”

A recent report by accountants Smith & Williamson found that the appetite for external capital among UK law firms had stepped up significantly over the past 12 months. In 2005 21 per cent of respondents said they would be likely to seek external sources of funding, a figure that increased to 51 per cent last year.

Edison’s research included a review of 32 professional services companies already listed in the UK.

Noble & Co argues that the professional services sector could grow at such a rate that a new FTSE sector classification should be considered to cover businesses as diverse as engineering consultants, ship brokers and investment banks along with the formally regulated professions of accountancy, law and architecture.