Given that not many firms have deep financial reserves, many will require some level of financing or funding to develop and implement a future-proofing strategy. Over the last few years there has been an ever increasing level of chatter around alternative funding routes for law firms. An industry notorious for sticking to the most risk averse option, it is a nice change of pace to hear firms discussing listing or taking funding from alternative sources. However, most firms seem to have followed the ‘no, you go first’ approach, preferring to see how it plays out for the very, VERY small percentage of firms that have done so.
Since the implementation of the Legal Services Act in 2007 I have noticed only 6 firms take the leap to list on the UK stock exchange. The question remains, will we see (m)any more?
So what is everyone else doing? Most, like Irwin Mitchell, prefer to source their strategic goals through the ‘safe option’ of bank loans or overdraft facilities. Giving firms defined parameters like fixed interest rates and specified repayments makes them feel all safe and warm. The main downside being that funds are much harder to come by. Irwin Mitchell managed to secure £30m with a possible extra £30m accordion facility available, DWF were able to raise £95m in their IPO, with a portion of that funding being used to repay a portion of their partners’ capital contribution, the rest being reinvested into the firm.
The risk of alternative funding methods is much higher, but the rewards are greater. Mishcon is the most recent big name deliberating whether or not to list, and it will be a closely watched process by everyone in the market. Mishcon is a firm known for its trail-blazing strategy; most firms, I imagine, will stick to the status quo, not wishing to risk upsetting the apple cart.
Firms will see continued growth using this strategy, but at what rate? It’s no secret that industry growth is slowing down and it is clear to me that in order to turn this around firms will need to increase their appetite for risk. I suspect the ‘middle of the pack’ firms will be those leading the way to do just that, given that they are the ones with the most to gain.