Gateley PLC became the first law firm to float on the London stock exchange, listing itself as a public limited company and has possibly opened the floodgates for similar firms to gain additional forms of capitalisation. Certainly, the future for firms has changed with alternative business structures (ABS), and perhaps clients are looking for cost-effective ways to secure legal advice with forthcoming transactions and deals. The private practice firms are certainly lacking this, as the economy continues to slowly grow. The future for firms, however, continues to remain uncertain. Gateley’s business model might be the turning point for growing, successful law firms.
The benefits of floating a firm
There are three main reasons for such a floatation. Gateley can create a liquidity event for its current shareholders without having to sell the business in its entirety. The senior partners will control the companies finances, but will be answerable to its shareholders.
There may be other investors who have provided venture capital. Venture capitalists provide capital that is at risk. They need to sell their shares in those businesses that are successful to attribute returns to their limited partners. There was a risk in this particular instance. Most firms are limited liability partnerships (LLPs). The firm’s partners can inject capital into the business as a way of raising finance. However, the Legal Services Act 2007 has been a crucial law, insofar that it has opened the doors for non-lawyers to own and invest in firms that adopt an ABS. The ABS structure enables firms to be owned by other companies but also allows them to attract investment in the stock market. The biggest risk entailed with floating a firm is cost. Every factor concerned with commercial growth envelops cost. Many firms have tried to become efficient with cost, as clients are now looking for cheaper, efficient ways of conducting business, whether it is merging, issues related to tax, or whether it is a litigation dispute. It is important for firms to be able to predict the amount of capital they are able to raise through listing. If the prediction is inaccurate it could be detrimental to the business plan.
A further benefit is additional capital. By going public it can raise additional money to invest in the business. Gateley has confirmed that part of the £10m it aims to raise will be used for future acquisitions. Slater & Gordon became the world’s first publicly listed firm when it listed on the Australian stock exchange in 2007, allowing it to finance expansion to the UK and purchase additional firms. Notwithstanding the remuneration and bonus packages, and reputational branding, a firm’s IPO is a valuable factor for commercial growth.
Flotation for other firms
It is likely that other commercial law firms will follow suit. Irwin Mitchell has considered flotation as an option, and with clients’ demands for growth, many firms will be watching Gateley’s growth closely.