IPOs for UK law firms?
According to a nationwide survey of UK law firm partners published yesterday (30th November), almost a third of law firms with 50 or more lawyers are ‘actively considering’ an initial public offering (IPO) within the next 18 months. The firms in question have turnovers ranging from £5m to over £500m.
The results suggest that there is a ‘continuing appetite’[1] for floating law firms on the stock exchange, despite the arguably underwhelming performance of law firm shares since City firm Gateley became the first to do so in 2015. As can be seen from the wider results of the survey, this may be attributable to the unprecedented demand from law firms for external capital (what City A.M. describes as ‘a growing trend among law firms to explore alternative financing models beyond traditional partnerships’[2]). For example, more than half of those surveyed said that the pandemic had presented new opportunities for growth, such as expanding existing practice areas or developing new business initiatives. Ellora MacPherson, chief investment officer at Harbour (the body who conducted the survey), agrees, saying that the survey ‘shows a real desire by firms to access external finance to support their growth ambitions’. However, she warns that IPOs ‘won’t be the best fit for all firms’.[3]
Indeed, despite some seemingly promising starts – such as DWF raising £95m through its IPO in 2019 – the performance of law firm shares has been described as ‘lacklustre’.[4] Continuing with DWF as an example, Paul Hodkinson observes that ‘high-profile problems have left shares trading at about half their pre-pandemic highs’.[5] It should also be noted that, despite the admittedly impressive influx of cash mentioned above, DWF’s valuation when it floated was £366m, around one-third of the valuation estimate it had announced.[6] It could be argued then that law firm IPOs seem like a dubious prospect.
Paul Hodkinson would no doubt agree. In addition to the one outlined above, he gives multiple reasons as to why law firms should be cautious when considering IPOs, such as facing demands for more acquisitions from investors, partners finding themselves worse off post-listing, and IPOs being more burdensome than other cash-raising options such as partner capital.[7]
However, Colin White contends that law firms ‘occupying the middle ground’ stand to benefit considerably from an IPO, as these firms have ‘the greatest opportunity for growth’.[8] Therefore, with top 100 UK firm Mishcon de Reya’s partners approving plans to float, and top 25 UK firm Irwin Mitchell considering the same, it will be interesting to see whether the IPOs of UK firms will prove beneficial to their plans for growth.
[1] Michael Cross, ‘One third of big firms ‘actively considering an IPO’’ (The Law Society Gazette, 30 November 2021) < https://www.lawgazette.co.uk/news/one-third-of-big-firms-actively-considering-ipo/5110753.article> accessed 1 December 2021
[2] Farah Ghouri, ‘Exclusive: Third of law firms consider going public in search of funds for expansion’ (City A.M, 30 November 2021) <https://www.cityam.com/exclusive-third-of-law-firms-consider-going-public-in-search-of-funds-for-expansion/> accessed 1 December 2021
[3] Cross (n1).
[4] ibid.
[5] Paul Hodkinson, ‘Law Firm IPOs Are Gaining Steam in the UK, but History Offers Cautionary Tales’ (Law.com, 19 May 2021) <https://www.law.com/americanlawyer/2021/05/19/law-firm-ipos-are-gaining-steam-in-the-uk-but-history-offers-cautionary-tales-405-82495/?slreturn=20211101100024> accessed 1 December 2021
[6] Colin White, ‘Law firms and IPOs: floating away’ (Thomson Reuters Practical Law, 28 March 2019) <https://uk.practicallaw.thomsonreuters.com/w-019-6354?transitionType=Default&contextData=(sc.Default)&firstPage=true> accessed 1 December 2021
[7] Hodkinson (n5).
[8] White (n6).
