The announcement on 12 March 2015 that publicly listed law firm Slater + Gordon was to make a AUS$1.2billion acquisition in the UK has debunked the myth that law firms can’t be successfully listed – or has it?
The only law firms to have been listed on a stock exchange have been in Australia, although there are rumours that we will see at least one in the UK in 2015 and maybe another in Australia soon. Of the developed countries, it is only in the UK and Australia where law firms can become incorporated entities, take in external investment and have non-lawyers in control.
In Australia, the standout listed law firm is Slater + Gordon (SGH), which is primarily focused on personal injury and consumer law, in other words a retail or B2C law firm. The firm listed on the Australian Stock Exchange (ASX) in 2007, and using shares and cash it began to acquire and assimilate similar law firms in Australia to extend its geographic footprint and also provide new consumer and small business legal services. In 2012, Slater + Gordon made its first acquisition in the UK and since then it has followed its established pattern of further acquisitions to expand its UK geographic footprint and expansion of consumer and small business legal services. All acquisitions were through a combination of cash and stock, with varying constraints and obligations put on the vendors.
In 2013, another personal injury and consumer law firm, Shine Lawyers (SHJ), listed on the ASX. Shine is notable by its association with Erin Brockovich. Since listing the firm has made acquisitions, using shares and cash to extend its market reach in Australia and according to press comment it is considering entering the UK – which would seem inevitable.
Both Slater + Gordon and Shine offer strong insights into which aspect of law and what delivery model is appropriate for listing. Namely, high volume low value legal matters, which are primarily focused on the consumer or small business market (B2C) – not the corporate law or B2B legal market. The B2C legal market is characterised by strong processes and systems that churn matters efficiently with a high leveraged model of appropriately qualified lawyers and paralegals, under a corporatised management command and control structure. A far cry from the typical partner-associate-lawyer model, where there may be a leverage of 1:3 and professional motivation is not on efficiency but on intellectual and, more often than not, increasing the financial gain of the partner.
The overarching benefit that both Slater + Gordon and Shine promote is that they make legal services both accessible and affordable to the general public, this can be seen through their innovative fee structures, their use of technology and how they are consolidating within the legal services supply chain. Slater + Gordon’s proposed AUS$1.2billion UK acquisition of Quindell’s professional services division is a strong case in point, it will be earning revenue from every step in the process from ‘incident’ to ‘resolution’ – which goes far beyond the traditional definition of legal services.
Another legal services firm listed on the ASX in November 2014, Spruson & Ferguson – an IP and patent attorney firm, now known as IP Holdings (IPH). This firm confirms the trend of applying technology, processes and systems to high volume low value legal matters, taking them outside the traditional partnership structure. Interestingly, IPH’s first acquisition was a technology company, acquired to increase its efficiency and effectiveness.
Access to external capital and tradable shares has allowed these firms to grow and invest at a pace and in a corporate style that is providing incremental benefits to their client base, strong market returns to their investors and secure employment for their staff – at a time when many law firms are struggling. There is a lesson here for the wannabes.
However, beware, one listed Australian law firm did fail. Integrated Legal Holdings was an attempted aggregation of smaller generalist corporate law firms that ran on a conventional partner-lawyer leverage model, which attempted to increase profit through economising on back office costs (i.e. a focus on supply). Take away the partner profit incentive model and replace it with corporate governance, salary, bonus and dividend – with an undifferentiated market position and there lies a recipe for failure. Whereas, driven by a focus on demand and differentiation all three of the Australian listed law firm success stories have the following attributes in common – a redefined legal services business model, a very clear focus and market identity, the ability to scale, and the ability to invest in technology.
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An abridged version of this blog first appeared in the Australian Financial Review 24 April 2015.
Other related blogs and thought leadership from Beaton Capital can be found here:
- Whose interests are served by M&A in consulting?
- Valuation and price are not equal
- Selling the firm – does size matter?
- How much is my firm worth?
- 20 questions to test your resolve: do you really want to sell your firm?
- Succession: trade sales – gain, pain, both?
- Takeaways from a recent sell mandate – points to consider when it comes to selling your firm
This post was written by Warren Riddell, of Beaton Capital and Beaton Research + Consulting. Warren’s details can be found at LinkedIn.
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