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Listing on the stock market: the future of legal firms?

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The past few months have been exciting ones for the legal industry.

In May, Knights plc became the fifth English law firm ever to float on the stock market, raising a staggering £50m in funding from doing so. This October, it followed up by announcing the acquisition of a smaller firm, Spearing Waite LLP, issuing a further 97,208 new shares for potential shareholders to invest in as it did so. 

Knights has joined an ever-growing list of firms who are breathing fresh life into the traditional legal market. Since 2007’s Legal Services Act, which has allowed law firms to accept investment from non-lawyers, the idea of listing has slowly become a reality, with the subsequent decision of the SRA to regulate these Alternative Business Structures in 2011. Whereas beforehand firms have had to operate as partnerships (or sole traders), now they can sell shares, hire non-lawyers as senior board members, and operate much like any other big business. 

However, it’s only now that we’re starting to see the effects of this legislation bear fruit. In 2015, Gateley became the first UK firm to float on the stock market, and only two firms followed suit in the following two years. However,  following years of inactivity, 2018 looks set to be the year that these new possibilities become wholly embraced by companies within the UK: Rosenblatt Solicitors listed in May, bringing in £43m, followed by Knights. Now, DWF and Fieldfisher are also rumoured to be exploring similar options. 

They’re not alone. Since 2014, there’s been a sea change in how many Top 100 UK law firms view floating on the stock market: in fact,24% of them would consider private equity investment as a source of funding, up from 4% only a few years ago. Given that the legal sector is was worth 32.7bn in 2017, this change in opinion is likely to have a huge impact across the country.

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The rise of IPOs

While the legal market in private practice is one of the biggest sectors in the City, it has continued to operate in what some might say an archaic way. In fact, the recent Gender Pay Gap report from the government showed just how little had changed, and how few women make it to senior legal positions. Let’s face it: law firms have always been ‘an old boys’ club where the equity partners generally have an iron grip on the strategy and the purse strings. An IPO potentially means a loss of control and further erosion of the old boy network. 

Indeed, this shifting trend towards listing promises to be a welcome breath of fresh air, with changes slowly seeping through to private practice, such as the appointment of non-lawyers as CEO’s, the set-up of outsourcing arms, and the slow move to more diversity within the sector, especially given the trend for appointing non-lawyer female CEOs. It’s a promising start.

In addition to the changes currently taking place within the industry, many lawyers are also realising the benefits that come with listing: namely, an immediate cash injection, allowing their firm to make more investments with fresh capital. When it comes to financing expansion plans, having an IPO is an attractive solution, as opposed to a visit to the bank or searching for suitable firms in the market to merge with. In today’s mobile labour market, listing is also proving an effective way to incentivize employees, most notably by getting their ‘buy in’ through share schemes. 

The challenges of listing

However, as attractive as this option may seem, it also brings with it a raft of complications. Many firms have been reluctant to float on the stock market from a regulatory point of view, and certainly before 2011. There was, and is, concern from some quarters that deferring to a profit-driven board of shareholders might compromise the obligation these firms have to perform their function as instruments to the law, although others point to the transparency that listing brings to a business. 

An IPO also means a massive change in leadership for law firms: many smaller firms are bringing in CEOs and non-lawyers to run them, whilst large corporations are deferring to boards and trustees to ratify and implement important decisions. Essentially, the legal sector is slowly waking up to how the rest of the commercial world operates, and how to better service the clients they represent. Indeed, listing is becoming an increasingly attractive way of raising the credibility and profile of the firm in question, especially as the number of firms opting for Limited company structure rather than partnerships is increasing, and partnerships now only make up 45% of firms.

What does this mean for the future? 

Law firms are starting to expand their roster of current services, using the money they receive from listing to invest in establishing new consulting models in regulatory or financial matters. 

This changing legal sector landscape also spells good news for legal professionals looking to take the next step in their career. Times are uncertain, and there are lots of pressures on private practice, such as pricing, advanced technology and the precarious situation of the economy and relationship with Europe. However, the legal sector is clearly highly investable, as seen by the market’s response to the listings of the last few years. 

In addition, the war for talent has been a prominent issue in the legal sector- as shown by our 2018 Salary Guide- however, as firms branch out into new niches and seek to expand, demand for talented lawyers will undoubtedly rise, increasing salaries and even influencing better employee benefits schemes as it goes. Furthermore, the move to improve diversity has broadened the playing field for professionals around the world looking to start climbing the ladder; to all intents and purposes, the future is bright.

Though firms have been slow to change, the influx of capital, a change in leadership and even a new commitment to expanding their services promises exciting times ahead for legal professionals. One thing’s for sure: there’s never been a more exciting time to start looking for your next job opportunity.

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