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LEGAL FINANCE: Ownership expansion will revolutionise UK market
BYLINE: John Duckers Business Editor
SECTION: BUSINESS; Pg. 24
LENGTH: 583 words
The West Midlands' legal sector needs to prepare itself for a major ownership revolution after an Australian law firm became the first in the world to float on a public market.
Slater & Gordon listed on the Australian Stock Exchange on Monday after the offer closed earlier this month fully subscribed.
The firm is taking advantage of recent changes to Australian law allowing nonlawyers to invest in law firms for the first time. And, according to accountants Deloitte, the UK legal market looks set to follow in its footsteps, particularly if the Legal Services Bill is enacted.
Anna Marks, audit partner at Deloitte in Birmingham, said: "Traditionally, the idea of lawyers raising funds in exchange for a proportion of the equity has been likened to selling off the family silver.
However, the legal industry is changing around the world.
"An Australian firm may be the first to float, but it is highly likely a UK firm will follow in due course."
In the UK, the Legal Services Bill is currently before the House of Lords and is expected to receive Royal Assent later this year.
Ms Marks added: "In short, this will result in the UK having the most open legal market in the world."
The removal of restrictions will have wide ranging implications.
Law firms could raise funds in exchange for equity in the firm; they may float on public exchanges; non-lawyers could become partners in law firms; multi-disciplinary partnerships could be set up; and corporate entities such as banks, insurance companies and supermarkets will be able to provide legal services.
At the upper end of the market, there are a number of reasons why larger firms might want to raise funds in exchange for outside ownership.
Firstly, it will provide a new source of finance to aid domestic and international expansion plans or to invest in new IT systems. Secondly, it can enable the firm to take on riskier projects as portfolio investors have a greater capacity for higher risk. Thirdly, it allows the owners of the firm to realise its value. Finally, it can be an attractive recruitment tool, allowing a firm to offer share option schemes and enhance employment opportunities for non-legal staff.
But the availability of external capital could also pose a threat to the major law firms. Individual teams may be encouraged to break away and form their own company with the backing of an external investor.
Deloitte anticipates a number of midtier firms will float in the UK, most probably on AIM.
Ms Marks said: "If you look for precedents, we have seen accountants, management consultants, patent attorneys, architects and chartered surveyors float. I see no reason why law firms are so different from these organisations.
"At the smaller end of the market, the impact will be even more noticeable.
"There is likely to be significant consolidation and aggressive competition from well-known brands. We expect to see the number of sole practices and small partnerships currently in existence decrease significantly."
Opportunities will exist for major companies to start legal businesses from scratch or acquire existing law firms.
These businesses will be able to exploit their brand and existing customer relationships.
They will also be able to operate with economies of scale that the High Street firms cannot compete with. Finally, they will have access to capital allowing the investment to drive down the costs of their services.
"This will result in the UK having the most open legal market in the world
Anna Marks
johnduckers@mrn.co.uk
LOAD-DATE: May 25, 2007
LANGUAGE: ENGLISH
PUBLICATION-TYPE: Newspaper
Copyright 2007 Midland Independent Newspapers plc
All Rights Reserved
