With that odd mixture of arrogance and insecurity, the most ambitious City partners are constantly comparing themselves with their rivals. It’s par for the course in an industry stuffed with type-A overachievers, and it’s at its most acute during the financial reporting season.
So just imagine what they’ll be like when and if law firms are allowed to float. On page 20 is Matt Byrne’s groundbreaking analysis on how law firms might be valued and how much individual partners might get in the event of a share offering.
First, some caveats. Close Brothers and Noble & Co are among the houses already chasing after this market, but as yet there is no template for how to value a law firm. One of the many difficulties is that valuing goodwill and all the intangibles, including the brand, is incredibly tricky. Readers will therefore appreciate that The Lawyer’s analysis is written as a discussion paper, so we welcome your thoughts.
How much extra cash could City partners get on a partial float? The formula used here, developed by a former Panmure Gordon banker, works on the basis of a 25 per cent sale of the equity and an earnings multiple in the early teens. Both these figures – indeed everything in the calculation – is a variable.
On this entirely hypothetical and conservative basis the equity partners at the firms we profile could make a very nice one-off profit. Interestingly, Halliwells comes off best, with a potential one-off windfall of £667,000 per partner – and that’s not including salary, participation in a new bonus pool and share participation in the newly floated company.
But for many cautious lawyers, a deal of this kind is tantamount to selling off the family jewels. As Nigel Knowles said last month, it might be good for him but not so great for DLA Piper. Still, what fun to guesstimate what partners might make. On the basis of these calculations, magic circle partners could easily trouser well over a million as a one-off gain – although they are the least likely to go for share offerings because of multijurisdictional headaches.
Timing is all, of course. Right now, we’re at the top of the biggest bull market in M&A since the dotcom boom. By the time the Legal Services Bill gets passed, the IPO market could be in freefall. But let’s allow those partners to dream for a while.