Question: Is there really an abundance of investors keen to work with the legal sector or, have they simply failed to see enough ABS enterprise worth investing in?
Answer: Maybe not an abundance, but there are a good number of potential investors out there looking for the right relationship. We’re working with some of them now, where integration of legal services into their current business proposition would open up new opportunities; also investors aiming to consolidate complementary law firms, with a sound rationale behind their strategy and money to invest … but wisely. They also have to participate in the business to balance their risk and return pro-actively.
However, the same familiar obstacles that many firms have already faced on true mergers (as opposed to simpler acquisitions, where what the lead management team just take control) over the past few years arise in both these situations. They are even more of a challenge where investors make assumptions based on their experience elsewhere before going into preliminary discussions with a law firm; particularly when the external investors are not already engaged in the legal sector.
Quite different perceptions on both sides about how the business has to be run robustly and by whom – roles and interests going forwards – can drag out any discussions for a very long time. Interestingly, investors talking at the recent Modern Law Conference talked of gestation periods for deals of up to 6 years in the legal sector, when they might expect it to be 1 year in other sectors.
External investors want a role and lawyers often want to retain more control than the investors are prepared to countenance – but this can often be addressed through rational evaluation of the business strategy. The more partners there are in the legal practice, the more difficult it can be of course to achieve commitment to the right balance; and then be sure it can be implemented effectively. Reaching that stage takes time but it can be accelerated.
Investors are looking for the right law firms with the right leadership now to recognise the value of the investor’s management input to improve the business… not just their cash. There is a strong case for deeper preparation at the outset and for objective facilitation of early discussions to determine quickly if any relationship has potential to be successful … or not.
Allan Carton as published in Modern Law Magazine