Law Firm PLC: Does Going Public Work?

The Rise of Alternative Business Structures

The Legal Services Act 2007 (LSA 2007) disrupted the traditional partnership model of UK law firms by allowing firms to register as Alternative Business Structures (ABS). Unlike the traditional partnership model, an ABS allows non-lawyers to participate in the ownership of a law firm.

Since the LSA 2007 came into force, more than 500 ABS registrations have been made, covering a wide range of business models.

The rise of so-called “Tesco Law” has seen well-known brands such as Tesco and Co op enter the legal services market, initially offering relatively straightforward services such as will writing. The Big 4 accountancy firms have also entered the legal services market, a development previously covered by The Student Lawyer.

Other firms have used the flexibility offered by the corporate structure to provide complementary non-legal services alongside legal work. Irwin Mitchell, for example, has operated subsidiary businesses providing services such as debt collection and insurance claims management.

Relatively few firms, however, have chosen to take the additional step of making an Initial Public Offering (IPO) and listing on the UK stock market.

An IPO allows a privately owned company to become publicly traded, with shares made available for purchase and sale on the stock market. The process is subject to extensive regulation, including requirements for companies to publish detailed prospectuses containing information for prospective investors.

Who has taken the plunge?

So far, only a handful of law firms have gone public.

The first was Gateley, which became Gateley plc in 2015. The firm was valued at £100 million and raised £30 million through its listing.

The second was Gordon Dadds in 2017, which raised £20 million and almost doubled the firm's market capitalisation.

The largest firm to go public was DWF in 2019. It was valued at £366 million, making it large enough to list on the main market of the London Stock Exchange.

The other publicly listed firms had listed on the Alternative Investment Market (AIM), a submarket of the London Stock Exchange aimed at smaller and growing companies.

The advantages and disadvantages

For a law firm partner, going public is not necessarily an attractive proposition.

In a traditional partnership, partners retain considerable control over the business. Although many firms have leadership committees, significant decisions, such as opening a new office or appointing a new partner, may ultimately be determined by a vote of the partners.

A listed law firm operates differently. It is run as a public company, with a board of directors responsible for managing the business in the interests of its shareholders.

This can mean losing an element of control and potentially accepting a reduction in short-term remuneration.

In an equity partnership, profits are largely distributed among the partners. A publicly listed company, however, must consider the interests of its shareholders. Investors generally expect returns through dividends or through the reinvestment of profits to increase the company's value.

The most obvious advantage of going public is the immediate injection of capital.

When a law firm floats, a proportion of its shares is offered for sale, and the proceeds can be used by the business.

Some publicly listed firms have used this capital to acquire other businesses. Gordon Dadds, for example, acquired international shipping specialist Ince & Co. Gateley has also used its resources to make acquisitions, including the purchase of GCL Solicitors.

Firms using the ABS model to provide additional services can also use capital raised through a flotation to invest in these areas.

DWF, for example, has indicated its intention to invest further in areas such as DWF 360, its software provider division.

Employee ownership can also form part of the model.

Gateley has introduced a share option scheme allowing employees who remain with the firm to acquire shares. Such schemes are commonly used to incentivise employees by giving them a financial interest in the company's performance.

Partners who choose to list their firm may therefore accept a reduction in short-term remuneration in the hope that the value of their ownership interest will increase over the longer term.

Has it worked?

For a publicly listed law firm to increase its value, it needs to generate sufficient investor demand for its shares.

The concept of investing in publicly listed law firms remains relatively new, meaning investors may initially be cautious about the model.

So far, however, the results appear encouraging.

Gateley's share price had approximately doubled since the firm's 2015 listing, suggesting that the market had responded positively to its performance.

Nevertheless, it remained early days for the law firm plc experiment.

The success of DWF was likely to attract particular attention. As the largest law firm to float at the time, its performance could provide an important indication of whether the publicly listed model could work effectively for a major international law firm.

Whether more firms would follow remained uncertain.

For law firms considering the move from partnership to public ownership, the central question was whether the additional capital and growth opportunities justified the loss of control and changes to the traditional partnership model.