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From LLP to IPO:

With a £1 Billion Law Firm IPO on the UK Horizon, Will American Firms Be Next?

Earlier this summer, UK-headquartered international law firm DWF LLP (1,100 lawyers, 2,800 total employees, and 27 global offices) announced that it was considering an initial public offering, with a valuation estimated at more than 1 billion. If undertaken, that would represent the biggest IPO for a law firm in history, and would be the first large-scale law firm IPO since Slater & Gordon listed on the Australian stock exchange in 2007. This September, DWF further specified its intention to proceed forward and conduct an IPO in early 2019.

Melbourne-headquartered Slater & Gordon's IPO in 2007 was the first ever for a law firm, with three other Australian firms following suit in 2007 (Integrated Legal Holdings), 2013 (Shine Lawyers), and 2014 (IPH). In addition, five UK-based law firms have since gone through IPOs: Gateley in 2015; Gordon Dadds and Keystone Law in 2017; and Rosenblatt Solicitors and Knights in 2018.

Why IPO?

So why go public? In the traditional partnership model, if a firm needed to raise capital-to invest in new technology, build up cash reserves, fund expansion into new markets, or to drive any number of business transformations or growth initiatives-a normal course would be to request additional capital contributions from the firm's partners. Alternatively, via IPO, firms can raise significant levels of capital while shifting the "risk" to equity shareholders, eliminating the need to take directly out of partners' pockets. However, this shift has the correlative effect of reducing partners' control over the firm. For example, Rosenblatt Founder and Senior Partner, Ian Rosenblatt, saw his equity stake more than halved following the firm's May 2018 IPO-from 59 percent down to 21 percent.

Of course, raising capital via IPO is no guarantee of success: Slater & Gordon used the proceeds to go on an acquisition spree, including insurance firm Quindell whose subsequent accounting scandal helped to tank Slater & Gordon's stock price from AU$8.00 down to AU$0.82. For its part, DWF explains the motivation behind its pending IPO as "a desire for further investment in the business and to better incentivize staff."

That ability to bring incentives into alignment with long-term firm strategy is often cited by law firm IPO proponents. Georgetown law professor (and co-founder of litigation finance firm Burford Capital) Jonathan Molot postulates that the traditional partner-capital model encourages a focus on short-term results, with senior partners severing their equity relationships with the firm upon retirement, and having little to no incentive to look beyond the financial results (and distribution) for a given year. However, via IPO, "if partners were to keep their capital in the firm even after they retired-and if outside investors, such as pension funds and other institutional investors, bought shares of the firm-that would give the firm permanent equity and give retired shareholders incentive to invest in younger lawyers to maximize the firm's long-term success." Further, structuring "golden handcuffs" in the form of longer term equity vesting could also be leveraged as a tool for partner retention-a device long utilized by public corporations to "tie down" key executives.

Justifying the ability to raise significant capital and align incentives more optimally with long-term strategy, at the expense of diluting partner equity/control, is only part of the equation that firms must consider. Another major factor in that consideration is the resultant need to develop and implement public-company-standard financial reporting, controls, and methodologies. While there is a follow-on benefit to having robust and rigorous finance functions, and being able to better leverage those for strategic planning and managing business operations, elevating a firm's finance function to that level (and expanding statutory reporting, investor relations, etc.) represents a significant expense in and of itself.

Law Firms on Wall Street?

While their UK and Australian counterparts can weigh those costs/benefits and act accordingly, US-headquartered firms - for now - are not yet able to undertake the IPO path: "Rules on whether non-lawyers can own [US] law firms are regulated by state judiciaries ... and there are no states considering changes that would come close to allowing a law firm to be publicly traded."

According to Andrew Perlman, law professor and advisor to the American Bar Association on Ethics, "the idea of lawyers reporting to shareholders is controversial. One of the biggest concerns is that it could compromise an attorney's professional independence," raising a conflict of interest-that if beholden to outside shareholders, lawyers may be more focused (or perceived to be more focused) on the interests of their shareholders, than the interests of their clients.

However, other US-originating, professional services firms that have gone public have demonstrated success balancing client and shareholder demands-firms such as Accenture, Navigant, and Huron. As the broader trend of increasing sophistication and impact of business management and commercial leadership at law firms continues, it may not be long before leaders of a major law firm are ringing the opening bell on Wall Street, ushering in the first US law firm IPO.

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