Bloomberg has reported a surge of interest from private equity funds in investing in law firms.
The Legal Services Act will allow outside investment in law firms from 2011. With recent results showing that they can still generate significant profits through the depths of recession, law firms are looking very attractive. Now that deal flow is increasing and profits are looking to be stronger in 2009/10, many of the funds are keen to buy in as soon as possible. The SRA is already being lobbied to allow for investment before 2011, and funds such as Flemings, Phoenix and Lyceum have all expressed interest.
Bloomberg reckons that mid sized law firms will be the likely targets, with the biggest outfits remaining untouched: the argument being that Magic Circle firms don't need external finance to develop their businesses as they wish - as recent results from A&O and Linklaters, for example, have shown.
However it's not yet clear whether mid-sized City firms will take the plunge. Private equity houses seem most interested in the more commoditised sections of the legal market - such as law firms that churn out basic residential conveyancing. In other words, businesses that be grown through the injection of more capital, without hinging too much on tricky things like individual performance. Charles Martin, Senior Partner at Macfarlanes, told RollOnFriday that "certain categories of law firm may well be suited to this sort of investment, but the specific characteristics of City and corporate law firms are unlikely to make them suitable".
Even for firms that may be suitable, there is also the question of how the PE firm makes its exit - either a float, refinancing or sale. Many partners have little appetite for this sort of uncertainty and future upheaval.
Still, for some outfits at least it looks like partners will get cash for rapid expansion at a time where the bank finance is scarce. Is that a bad thing for associates? Well firms may be selling some of their own independence - but then a third party financial investor may well bring the sort of discipline to strategy and corporate governance needed for long term success that many partner-owned and managed law firms lack.
Tip Off ROF
The Legal Services Act will allow outside investment in law firms from 2011. With recent results showing that they can still generate significant profits through the depths of recession, law firms are looking very attractive. Now that deal flow is increasing and profits are looking to be stronger in 2009/10, many of the funds are keen to buy in as soon as possible. The SRA is already being lobbied to allow for investment before 2011, and funds such as Flemings, Phoenix and Lyceum have all expressed interest.
Bloomberg reckons that mid sized law firms will be the likely targets, with the biggest outfits remaining untouched: the argument being that Magic Circle firms don't need external finance to develop their businesses as they wish - as recent results from A&O and Linklaters, for example, have shown.
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Ker-ching |
However it's not yet clear whether mid-sized City firms will take the plunge. Private equity houses seem most interested in the more commoditised sections of the legal market - such as law firms that churn out basic residential conveyancing. In other words, businesses that be grown through the injection of more capital, without hinging too much on tricky things like individual performance. Charles Martin, Senior Partner at Macfarlanes, told RollOnFriday that "certain categories of law firm may well be suited to this sort of investment, but the specific characteristics of City and corporate law firms are unlikely to make them suitable".
Even for firms that may be suitable, there is also the question of how the PE firm makes its exit - either a float, refinancing or sale. Many partners have little appetite for this sort of uncertainty and future upheaval.
Still, for some outfits at least it looks like partners will get cash for rapid expansion at a time where the bank finance is scarce. Is that a bad thing for associates? Well firms may be selling some of their own independence - but then a third party financial investor may well bring the sort of discipline to strategy and corporate governance needed for long term success that many partner-owned and managed law firms lack.