Law firms jump the fences in a quest for capital

Elizabeth Fournier
EARLIER this week, law firm Irwin Mitchell hired Glyn Barker as its chairman designate. Barker, a 30-year veteran of PwC, built the accountancy giant’s private equity practice and was its vice chairman until the end of last month.

In the corporate world, cross-hiring between industries is common – take Chris Grigg’s sideways jump from Barclays to British Land or his predecessor Stephen Hester’s move into banking at RBS. Among law firms it’s not.

This is not the first time litigation specialist Irwin Mitchell has stuck its neck out. Almost a year ago it was the first firm to commit to changing its business structure under the new Legal Services Act, giving it the option to list on the stock market. Now chief executive John Pickering says hiring Barker is just another step towards its drive for external investment.

The introduction of Alternative Business Structures (ABS) on 3 January was a formal acknowledgment of the ripples of change that have been spreading across the legal sector for a while – until recently one of the most closed and traditional industries in corporate Britain.

As the Prime Minister presses for more employee involvement in listed companies through the Co-operatives Bill he announced yesterday, more law firms are abandoning their limited-liability partnerships.

Instead, they’re adopting decentralised models that prioritise flexible growth over integration – perfect for building an international practice with discrete revenues. Even big hitters like Allen & Overy are now outsourcing back office operations – echoing a trend that’s been present in public companies for years.

With yet another round of redundancies touted among City firms as the once-steady pipeline of corporate deals continues to just trickle, many are keen to embrace unconventional sources of financing, and ambitious mid-tier firms are making it clear that in the post-financial crisis business world they aren’t taking anything for granted.

Terms like war chest and growth strategy are entering the lexicon of senior partners – no longer able to rely on client relationships or a stable deal flow to boost reserves – and law firms used to using debt and internal contributions to fund operations are being forced to look further afield as lending again dries up.

Being an approved ABS moves the process on in leaps and bounds. Not only can non-law firms start providing legal services, but for the first time conventional equity partnerships can look for new ways to raise capital.

Australian firm Slater & Gordon – a litigation powerhouse like Irwin Mitchell – became the world’s first publicly traded law firm when it listed in its home country back in 2007. At an offer price of Aus$1 (then 42p), trading opened high and hit more than Aus$2.50 last year.

The precedent proves the law firm model is a viable one for outside investment, but eager pioneers will still need to show potential investors they’ve got key criteria ticked – growth prospects, an attractive price-to-earnings ratio and, crucially, a business-savvy boss to steer them through uncharted waters.

Barker’s appointment didn’t make headlines. It didn’t move markets, or draw comments from analysts on how his strategy might affect the firm’s bottom line. But if Irwin Mitchell and firms with similar aspirations play their cards right, one day soon it might.

Elizabeth Fournier is deputy news editor at City A.M.