A group taking the first full law firms onto the ASX are betting the structure will win legal talent and boost growth. Shaun Drummond reports
YEARS AFTER the option became available in New South Wales, a West Australian group is taking the plunge for the profession to publicly list the first full legal practices in Australia, and possibly the world.
Integrated Legal Holdings is hoping to raise $14 million, a large part of which will be used to buy WA law firms Talbot Olivier, Durack Zilko and Brett Davies Lawyers. ILH also plans to acquire online legal document company LawCentral and consultancy Professional Services Development.
The move comes more than two years after Noyce Legal spun off its mortgage and documentation processing business, and listed it on the ASX as a subsidiary of InfoChoice.
ILH is expected to list by December and will then be “on the acquisition trail” for law firms around the country.
ILH cites the spread of the model national profession laws to other states — particularly Victoria — as a reason to make the move now.
Foundation Law Firm Partner and spokesperson for ILH, Brett Davies, said one of the primary benefits for firms taking part is the ability to offer shares in the company, which he expects will help attract and retain talent.
“The lawyers becoming part of ILH believe that they will have a distinct advantage and an opportunity to create a greater size practice in this environment,” he said.
“For the very first time, we are able to offer employee share schemes. In my day, you weren’t a real man until you were a partner of a law firm. We would all work very hard to achieve that. Now the younger lawyers coming through don’t really subscribe to that, I believe.”
ILH’s listing, he said, will help its law firms compete against the pull of the in-house legal departments, which can offer similar salaries, plus employee share schemes on top.
In one day last week, ILH claimed it had about 60 calls from lawyers and law firms who are “interested in talking about what we’re doing”.
Post-float, the offer for which closes on 27 November, Davies said ILH would be seeking “high quality” law firms to join ILH, small and large, although it is unlikely to approach law firms with less than six executive partners.
So far, law firms have been reluctant to list for several reasons, including the fact that it was an option only available in one state.
Commenting last year on planned reforms for England and Wales that would allow non-lawyers to own law firms, chief executive partner of Mallesons Stephen Jaques, Robert Milliner said he believed one barrier was that outside shareholders would alter the fundamental economics of law firms.
“Part of the attraction of partnership is … that partners own and manage the business and they take part of the rewards of the risk they take in running the business through profit shares,” he said. “If you had that coming out to a third party, then you are paying out part of what formerly had been shared by partners to a provider of capital when it’s not clear what you would use the capital for.”
For a large firm in particular, he said there wouldn’t be much point in floating unless it was to help it expand, and Australia was already a “mature market”.
Duncan Hart, a professional services consultant, said for one thing, law firms in recent years have had little trouble getting access to cash through debt.
“If you are a law firm, it’s not that hard to borrow some money,” said Hart. “It used to be a bit harder, but capital is not a big issue these days.”
Davies counters that it’s not surprising those heading large firms would not be interested in an initial public offering (IPO) as they have achieved partnership and all the benefits that go with that. Listing is a way for small firms, however, to grow a national practice quickly, he said, and compete against larger firms as well as in-house departments for talent.
Another benefit, according to Davies, is in ‘tuck ins’. This involves attracting senior partners and their practices to ILH and placing them into one of the law firms in the group.
“If you go to a lot of lawyers who work 50-plus years, and they’re now ready to leave: they’ll walk to the door, turn the light off and they’ll leave,” he said. “They perceive no value in their practice, and they’re fellow colleagues see no value in their practice.
“If you can take that practice with two or three partners and … tuck them into one of our existing ILH law firms … they can get potentially quite good growth.”
But retaining the experienced lawyers who attract the clients is, as it is for any law firm, one of the main risks for ILH.
Davies said, initially, the income of lawyers in a firm that becomes part of the ILH group may fall, but this “short-term pain” will lead to long-term growth because of what they can offer by being part of ILH.
“They may well be able to attract a group of lawyers into their practice soon after acquisition, therefore they could move back to a profit area [equivalent to before they moved to ILH],” he said.
“They get an opportunity to increase the size of their practice and they also get to profit share. So if things go well, we would expect [with] those firms we acquire, [that] within four to six years, those lawyers would be back on similar incomes before we acquired them.”
Hart said the experience of accounting firms that have listed is “mixed”, the one obvious success being WHK Group.
He said the assumption is that profits will increase for all involved as the group takes advantage of the economies of scale provided through purchasing other firms with the cash raised from shareholders, but the realities of running a successful law firm remain.
“The issues here with working a group of disparate firms together and putting them together is nothing new or different, it is exactly what every major [law] firm has done,” he said.
The costs included maintaining the partners within the practice and ensuring they don’t take the money and run; paying for management that can work across the group, and standardising IT systems.
He said the access to additional would help this process, but insisted the “structure is not the solution”. It’s “the vision, it’s the hands on management, it’s the clients. Just because you put 10 small firms together doesn’t give you any big clients.”