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ABS countdown | The Australians are coming

BLO G | 9 September 2013

As Slater & Gordon continues to acquire English law firms, Stuart

Bushell asks what can UK lawyers learn from the Australian
approach and external investment generally
Australia's cricket team may be returning home having lost the Ashes
three-nil but its big law firms appear to be reversing that result. But what
can UK lawyers learn from the Australian approach and external
investment more generally?

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Only last month, Slater & Gordon Lawyers (S&G) confirmed that it was
acquiring Fentons Solicitors for 32.5m as the latest step in its
expanding English presence.
In May, the newly listed Australian firm Shine Lawyers announced that it was interested in a
number of law firms in the UK. This was followed in August by Integrated Legal Holdings, the first
corporate law firm in the world to go public, giving indications that Britain would be the target for
its own expansion plans. Both have no doubt been keeping a close eye upon rivals S&G, which
have been making the pace.

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In June it reported to the Australian Securities Exchange that its UK business had delivered
40.6m in revenue. S&G's first move came with the acquisition of Russell, Jones & Walker in
early 2012, which quickly became an ABS. It is also hoping to complete its acquisition of
Goodmans Law, in Liverpool, very shortly along with the purchase of Simpson Millar and the PI
activities of Taylor Vinters, probably in early 2014. The total investment on the UK for all five firms
is in the region of 110m.
If there is one clear lesson which can be drawn from this it is that listing does indeed lead to
access to greater funds to expand a business! One other conclusion is that, despite the ban on
payment of referral fees, it is the UK personal injury market which external investors find attractive
as an investment proposition.
All of the firms mentioned above have significant involvement in personal injuries work, as do
those acquired by the AIM-listed company Quindell Portfolio. It seems that the fragmented nature
of the personal injury market is seen by all of the potential investors as offering a large
opportunity for new entrants.
The perception is that, over a period of years, the Claims Management Companies, in the words
of Shine Lawyers' managing director Simon Morrison have "created a culture of dependency
among British firms for incoming work". This necessitates those practices having a complete rethink in the post-referral fee ban world, particularly in terms of communication with clients.
Concentration on what has happened since ABS became possible tends to ignore what has not
happened. In particular, the number of firms who have been boosted by big external investment
has not been what many supposed. Investors expect a return for their risk-taking and confidence
in how it will be achieved. They want clarity in what difference their money will make and what
the exit strategy will be when they make their investment. Contrast this with the reality of a
traditional law firm partnership. A typical practitioner manager-owner makes an investment on
becoming a partner and expects to take a similar sum out again years later.
In the meantime drawings out of the firm are maximised and the wealth created is not
significantly re-invested in the business. The consequences of this are in planning, investment in
infrastructure and a business which may be performing very well, but is unattractive to external
investors. Hence the concentration on PI work, which is visible as a commodity.
A large number of law firms have belatedly realised that the base of many of their problems is
structural. In September 2012 the number of incorporated law practices in England and Wales
overtook the number of partnerships for the first time, 29 per cent of all practices are now
incorporated, as opposed 26 per cent being partnerships. Many of these firms are also looking to
concentrate on those areas of law where they make a profit and also to have a continuous
involvement with their clients, as opposed to the inefficient "single transaction" model which
defines many firms. They will also tend to be conscious of the need to be accessible to their
clients, in physical reality and cyberspace. Firms such as these may find themselves well-placed
to remain independent or to take advantage of external investment.

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The Australian invasion may be seen by history either as a temporary blip, or the first phase of
external control of a large per-centage of the legal market.
Stuart Bushell is managing director of SIFA (www.sifa.co.uk) and a former Law Society director
RELATED TERMS:

Business Development

COMMENTS
by rlyqq | 22 September 2013
The countdown will be great. It is something to look forward to because of the things it involves. KSA Kosher

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