When the Legal Services Act came into force, the predicted stampede for external funding didn’t quite happen but with market consolidation and modernisation upon us, things are starting to hot up. PWC’s latest review of law firms suggested: “the law firm of the future may not be a partnership of lawyers, but instead be a multi-disciplinary partnership, a public company or a financial investor-backed private company”.
Swift change in the way services are delivered, a deep analytics driven understanding of the client’s business (tech/AI investment required) and a much broader and solutions focussed offering are all likely to be required - this would lead to deeper wider client relationships and less law firms on client panels. To be at the table as one of the law firms of the future, significant investment and future proofing will be needed. The partnership model doesn’t make things easy and firms are looking at other ways to fund change and growth.
Certainly a float seems to have been the favoured option to date: Gateley floated on AIM in 2015; then Gordon Dadds (which has been buying up smaller firms) in 2017. Keystone joined the club earlier this year....in 2014, private equity firm Root Capital injected £3.15m into Keystone, with the firm subsequently achieving annual revenue growth of more than 20%. It floated in early 2018 and posted a further 24% growth in revenues in its first post IPO results.
One of the latest firms to list is Rosenblatt - interestingly it has set aside £5m-£7m (of the multi £m raised) to use for developing its own third party litigation funding (another significant area of growth).
PE backed Knights is raising circa £50m from its listing...and Keoghs, DWF and now large city/international firm Fieldfisher are all allegedly mulling a float... the game is changing and momentum is really starting to build.
Will PE have a role to play? Whilst private equity houses have more generally focussed elsewhere, the legal sector offers steady and relatively safe returns and with proper investment, perhaps across a portfolio of law firms, there may be some significant opportunities going forwards. Knights, Keoghs and Keystone have all been PE funded.
Wherever the funds come from, it must be quite scary if your main competitor suddenly takes a new direction, has multi millions to spend and starts achieving phenomenal growth!
And of course with the funds in place, buying out the superstars in a competitor firm is a way to make the otherwise impossible merger happen...
...lots to consider ..watch this space.. but don’t miss the boat!
Private equity-backed law firm and City law firm explore London listings