Law Firms Considering Listing Will Need a Change of Mindset

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Since London-headquartered Mishcon de Reya announced the IPO of the world’s largest law firm in September last year, the discussion of the merits of IPOs in the legal industry has resurfaced again, even in Asia where most jurisdictions currently prohibit non-lawyers from owning lawyers. businesses.

In 2021, a poll by third-party funder Harbor found that around a third of partners in firms with more than 50 lawyers planned to go public within the next 18 months. Ellora MacPherson, chief investment officer at Harbour, says that in Asia, as the legal market becomes more competitive, “we would expect companies to want an infusion of external capital to grow or manage succession, so that the underlying drivers are there”.

As law firms wait for regulators and other bodies to pave the way to public listings, it would be good, however, to consider which types of firms are well-positioned for an IPO, as and when are allowed to register. .

Joel Barolsky, managing director of Australian consultancy Barolsky Advisors, believes that successful listed companies are usually those that want to grow a specific part of their business.

“Spruson & Ferguson, the Australian patent and trade mark firm, was one of the first companies listed in Australia. They saw the role of capital acquisition [as a means] to invest in their technology, their patent and trademark administration, registration and renewal platform. A lot of the money was going into developing systems and providing a platform that they could scale and then get into new markets, especially in Asia,” he said. declared.

“They were one of the forerunners in the Singapore market and have become one of Singapore’s largest patent companies. Then they opened other offices in the Asian region. They continued to thrive. It’s a good example where the money has been put to good use,” adds Barolsky.

The big challenge facing law firms, Barolsky says, is deciding whether they are a “brand” firm or dependent on individual lawyers.

“In areas of law where clients are happy to trust the firm’s brand, there is clearly an advantage to investing in growing that brand and building the franchise. In this case, the external shareholders will be investing in a valuable and durable asset,” he says.

“For example, a company with a reputation for helping individual workers with workers’ compensation claims — clients choose this company because it has a trusted brand. Trust is in the company or the brand of the company, not so much in the brand of an individual.

“However, when it comes to areas of law where clients buy key individuals more than the firm’s brand, such as high-end mergers and acquisitions, it’s clear that the firm’s key assets could disappear at any time. “, he says, adding that the arguments in favor of a list of these types of companies are “less convincing”.

MacPherson says that for a company to go public successfully, it needs an attractive proposition for investors, as “an attractive growth story is essential as well as a clear strategy for further growth. For companies that have grown steadily (but not rapidly) with limited differentiation from their peers, it will be difficult to attract investment.

Another challenge, notes MacPherson, is getting early buy-in from partners.

“It is telling that in many UK companies that have listed on the stock exchange, capital is relatively small. One would assume that companies with a few key partners controlling the majority of capital would find it much easier to push through an IPO than when the capital is spread across dozens or hundreds of partners,” she says.

Additionally, for companies where equity is more widely distributed, it requires “a significant change in the mindset of the company’s associates”.

“Many associates have worked at the same companies throughout their careers, aspiring to become partners and owners of the business. Upon reaching the top, deciding to sell their property in their business can be an emotional heartbreak. Reaching consensus can be difficult,” she says.

And then there are customers to consider.

Barolsky says it’s unclear how customers might view a company as listed. A potential conflict, he foresees, is that a listed company may “not undertake certain work or deal with certain customers, by virtue of the fact that it may not look good in the market”.

But another argument that could be made, he says, is that “if a company is listed, there is a level of transparency around financial performance that is required]. He needed to disclose his share of profits and his financial performance, and in a way that could lead to a more commercial and pragmatic approach to how they run their business.

Clients may also be uncomfortable seeing their law firm‘s stock price fluctuate, MacPherson says, if a listed firm continues to retain its best employees and deliver its clients, they’re likely not going to be concerned. not, especially when many customers are listed themselves.

“The greater transparency that a listing requires could also be perceived positively,” she adds.

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