All models have been on the table. Over the past year Mishcon’s management team has been examining different growth options, and its exploration of an IPO – an exploration much anticipated by the rest of the market – appears to have taken any private equity or family office investment off the table. With law firms now a recognised asset class in the public markets, if Mishcon’s exploration gets the go-ahead from partners, it is likely to follow DWF onto the main list late next year.
There are five reasons why Mishcon is likely to opt for an IPO, and while it would certainly shift the firm away from its reliance on partner capital and bank debt, none of those reasons is actually about the availability of cash. ‘It’s easy to get money – banks are queuing up to lend right now,’ says one managing partner.
However, a public listing drives transformation in a way that bank lending does not, since it effectively capitalises change. ‘If you have to make a list of all the things you want to do, well, if you go out and borrow it you can always find a reason not to turn it into opportunities.’
So goes the theory. However, none of the firms that have listed have shown particular innovation in their models, let alone driven change in the sector – the exception, perhaps, being AIM-listed Keystone Law, which is reflected in its current price of 484p, up from its listing price of 160p. There are five clear indications why an IPO would fast-forward change at Mishcon.
1 It’s a talent play for arbitration and investigations
While Mishcon will make it into the Global 200 this year with turnover of some £178m, it’s nowhere near getting into the Global Litigation 50. There’s evident frustration internally that even with its growth trajectory, something needs to be done fast to globalise – not least in the two biggest gaps within its disputes offering, arbitration and investigations.
Becoming the English Quinn Emanuel will require very serious investment in talent. A listing that helps it not only attract big-name partners but ties in the next generation of talent via a genuinely attractive share options model would be interestingly disruptive – particularly given managing partner Kevin Gold’s previous enthusiasm for the John Lewis staff-share model.
A turbo-charged Mishcon arbitration team would pave the way for the targeted Middle East or Singapore launch that it has been considering, and please investors with a clearly internationalised trajectory.
2 It will even out the lumps in transactional revenue
One of the besetting topics for law firm leadership teams in the City is how to move away from pure transactional/advisory towards annuity revenues in the shape of a relationship-driven consultancy model. Silver circle firms, with their transactional strengths, have always basked in high-growth revenues – and of course the income that drops straight to the bottom line – but at the same time there is always an issue about how to build a counter-cyclical business – as indeed, Travers Smith has done successfully with its disputes practice.
This debate has been sharpened in recent years with the focus on growing consultancy businesses, as we saw last month with Eversheds’ launch of its alt-legal offering Konexo. Mishcon’s litigation and commercial business sits firmly within the advisory rather than consultancy model. A move away from less potentially volatile revenues would be attractive (investors traditionally pay higher multiples on lower volatility) and would shore up its current investments in non-law consultancies, notably brand management, private wealth and especially the Mishcon tech lab. MDR Discover LLP, the firm’s e-discovery business, posted revenues of £1.6m in 2018, and the 2019 figures will be up 25 per cent; the firm expects similar growth from Mayfair Private, MDR Cyber and MDR Brand Management. Expect to see Mishcon use any IPO proceeds on significant global acquisitions, particular on the brand side.
3 Mishcon partners would loathe a merger
Acquisitions of consultancies may be on the table, but in other aspects mergers are not. While a law firm merger might bring a broader capital base and greater bench strength, there is zero appetite for combining with another law firm (‘pigs would fly’, says an insider). And indeed, it doesn’t need to. As The Lawyer argued two years ago, Mishcon should now be considered a member of an identifiable silver circle of high-value mid-tier firms that also includes Macfarlanes and Travers Smith. And like Macfarlanes and Travers Smith, Mishcon has grown without merger or even bolt-on.
Mishcon’s growth record – achieved without acquisition – makes it immediately attractive to investors.
4 Mishcon’s brand equity is high
In a sluggish IPO market, City financial advisers would sell many aged family members to get their hands on such a plum mandate. DWF’s IPO was predicated on high growth through acquisition, but outside the legal market it is little known – hence the appointment of Nigel Knowles as chair as part of the preparation. While Mishcon is likely to explore only an institutional placing, it is nevertheless one of the few commercial firms whose brand cuts through to a non-law public, either for its historical work for Diana Princess of Wales, or its litigation work on cases such Article 50. Expect to see some bold communications in the run-up to a float.
5 Mishcon is UK only – for now
Conventional wisdom has it that regulators of overseas jurisdictions would make a UK listing too difficult for any law firm with an international presence. While DWF got its float away, insiders admit that it required intensive work to make overseas regulators comfortable. Mishcon’s international offering has been predicated entirely on London’s position as a disputes centre. While its New York office is underpowered and has seen some volatility – it generated just £4.9m in 2018 – it is structured separately from the LLP.
…and a reason why it might not happen
Let’s not get too excited yet. It’s not a done deal. Kevin Gold still has to get partner approval, which won’t happen till late September. Legal market history shows that expressions of interest from the management team does not always translate into action: see Fieldfisher, whose IPO ambitions faded away, helped by the lukewarm response to the move from some quarters of the firm.
Any objections will be based on the intangible. A listing – even a part-listing – brings governance and reporting requirements that will be unattractive to certain partners, who may argue that the firm has come so far precisely because of its entrepreneurial culture. In fact, we might go so far to say that resistance to institutionalisation is embedded within the partnership; there’s still plenty of persuading to do.
The six law firm IPOs so far
- Date of admission: 8 June 2015
- Listing price: 95p
- Funds raised: £30m
- Market cap at time of admission: £100m
- Current price and cap: a listing price of 162p; market cap of £181.81m
- Financial adviser: Cantor Fitzgerald
- Legal advisers on the IPO: Fieldfisher (financial adviser)
- Date of admission: 27 November 2017
- Listing price: 160p
- Funds raised: £15m
- Market cap at time of admission: £50m
- Current price and cap: a listing price of 484p; market cap of £149.18m
- Financial adviser: Panmure Gordon
- Legal advisers on the IPO: Squire Patton Boggs (company), Fieldfisher (financial adviser)
- Date of admission: 4 August 2017
- Listing price: 140p
- Funds raised: £20m
- Market cap at time of admission: £40.5m
- Current price and cap: a listing price of 140.5p; market cap of £51.95m
- Financial adviser: Arden Partners
- Legal advisers on the IPO: Stephenson Harwood (financial adviser)
- Date of admission: 8 May 2018
- Listing price: 95p
- Funds raised: £43m
- Market cap at time of admission: £76m
- Current price and cap: a listing price of 104.5p; market cap of £83.7m
- Financial adviser: Cenkos Securities
- Legal advisers on the IPO: DLA Piper (company), Fieldfisher (financial adviser) and Dentons (independent advice on deal)
- Date of admission: 29 June 2018
- Listing price: 145p
- Funds raised: £50m
- Market cap at time of admission: £103.5m
- Current price and cap: a listing price of 300p; market cap of £219.98m
- Financial adviser: Numis
- Legal advisers on the IPO: DLA Piper (company), Walker Morris (financial adviser)
- Date of admission 15 March 2019
- Listing price: 122p
- Market cap at time of admission: £366m
- Current price and cap: a listing price of 122.75p; market cap of £368.25m
- Financial adviser: Stifel Nicolaus Europe and Jefferies International
- Legal advisers on the IPO: Allen & Overy (company), Clifford Chance (financial adviser)