Leading mid-market corporate advisory firm, Clearwater Corporate Finance, has launched a specialist legal services team to advise on the key issues facing the heads of law firms, in advance of the introduction of alternative business structures (“ABS”) in October 2011.
Under the Legal Services Act 2007, ABS will open up the legal services industry to outside investment for the first time to anyone deemed ‘fit or proper’. Legal firms will have a broad range of options available to them to realise value, including IPO, sale, merger or private equity investment.
The ABS structure will mean that legal firms will be more easily valued and this value realised. As a result, it is predicted that retiring partners will be much less willing to pass on their equity without a more tangible payment for the goodwill they have created. This could potentially create a glut of older partners holding on to the exit sign or a gathering of frustrated younger partners at the bottom of the ladder wanting equity but not ready to formally pay for it.
Phil Burns, managing partner and head of legal services at Clearwater, said: “The introduction of ABS later this year will lead to legal firms raising capital to buy out exiting partners to make way for the new. It could also accelerate the discussions that firms have already had to merge, IPO or take equity from a PE house or other external investor.
“But ABS is not just about exit and retirement. For the first time, firms will be able to raise capital from outside of the banks and the partners themselves. This capital may be deployed to enable a firm to open up its offer to clients by broadening its services within the sector or by expanding away from the law into other complementary areas, such as property, taxation, or IP.
“What we have found by talking to heads of legal firms is that they most want an honest assessment of the valuation of their business, the external implications of that, and of the strategic options available to them. We have engaged with a number of firms in the sector and expect to work with more to help them stay ahead of what will only become a more competitive industry, but one that should also grow strongly with investment now available from a much wider range of sources.”
Clearwater was at the forefront of sale processes in the UK legal services market, having structured the sale of the CS2 Group of legal services companies to Helphire Group plc in 2007. Last year, Clearwater also advised Gateley on its move into the North West with the acquisition of the Manchester commercial practice of Halliwells.