I attended the Modern Law Conference, which focused on the new world of ABS’s last week; a well attended and interesting event; particularly because there was a good number of unfamiliar faces there. The most interesting session for me was the one involving a panel mostly of investors who have actually invested in law firms, which included:
- Iain Kennedy from Duke Street (Parabis)
- John Llwelleyn-Lloyd from Espirito Santo
- Jordan Mayo from Smedvig Capital (MyHomeMove)
- Steve Arundale from NatWest
- Trevor Howarth from Stobart Group
The two key messages from this for me?
- For whatever reason, and we discussed a few - it has taken a long time for each investor and law firm that has taken up external investment to establish enough trust and a relationship between investor and law firm to get all parties comfortable enough to do a deal that can work for all. For both Parabis and MyHomeMove, there was a gestation period in the region of 6 years before any deal was done. This may accelerate now. However, well considered business relationships take time in any business sector and it would be normal in any sector for a relationship between business and investor to take at least a year to develop. Anyone acting hastily should be regarded warily. A key conclusion was that law firms that want to secure investors within the next two years need to be initiating discussions now. Lawyers need to recognise the role of investors in developing the business and their own role in what can become a quite different and faster moving business world once investment has been secured.
- Until now, the number of attractive investor deals has been very low. Jordan Mayo of Smedvig commented that they had probably had discussions with up to 100 firms over the years … but have only done one deal!
A useful resume of other key points from the Law Gazette …
Law firms will continue to be unattractive to private equity investors until they improve how they present their financial situation and partners invest their own cash, leading investors said recently. John Llewellyn-Lloyd, head of professional services at investment bank Espirito Santo, said external investment was the best way to ensure the future of firms, but potential backers were often put off by uncertainty over financials.
Llewellyn-Lloyd told the Modern Law conference that up to 8,000 firms will seek mergers or disappear altogether over the next five to 10 years. ‘Bank debt will be far less plentiful in the future – the professional services industry is going to see less debt and if partners won’t put their hands in their pockets you will have to go to external investors,’ he said.
‘But they need to feel there is a culture of internal investment. It’s very important to have your existing revenue generators all keen on owning shares in the business – if they’re not it’s highly unlikely they’ll be first in the queue for investment.’
Jordan Mayo, managing director of equity investor Smedvig Capital, said a number of firms had approached his company about additional finance, but market uncertainty and the firms’ business plans had prevented any deals. ‘We’ve spoken to 50 to 100 firms in the last year but have not invested in one yet,’ he added.
Llewellyn-Lloyd said it was inevitable that medium-sized firms would reduce in number in the coming years as non-lawyers enter the market and big brands dominate. ‘The legal profession has 20 times more firms than accountancy, which itself is still consolidating,’ he said. ‘There is no way to go but efficiency and consolidation – there are likely to be a handful of firms left in the middle market.’
More interesting commentary on this article here