Further to our mention of ABSs in the previous entry, an historic event occurred last week: the first UK law firm, Irwin Mitchell, has declared its intention to become an Alternative Business Structure under the Legal Services Act soon to become effective, and has engaged an investment bank to help fashion a workable and attractive structure.
In preparation for becoming an ABS, the firm is restructuring into two tiers, adding a new holding company that will control Irwin Mitchell LLP, which has a strong personal injury base and will remain the main operating business. The firm’s long-term strategy includes offering a series of branded products to the consumer market, such as commoditized trust and estates, real estate and victims’ rights services.
The firm is taking this current step, according to Managing Partner John Pickering, because "conversion to an ABS will broaden our access to capital and enhance our funding flexibility as we execute our strategic growth plan, while ensuring that we can continue to provide the very highest standards of service to our clients.”
The firm’s offerings recall the ground-breaking Hyatt Legal Services in the US and the more recent UK equivalent–QualitySolicitors, which has recently struck a "game-changing" deal with WHSmith to open legal services kiosks offering fixed fee legal services to consumers in hundreds of retail locations.
Founded in 1977 on the heels of Jacoby & Meyers’ Supreme Court decision allowing lawyers to advertise, Hyatt Legal Services ultimately morphed into a legal plan that was acquired by MetLife. Now providers to consumers, like QualitySolicitors, are able to take advantage of the internet’s new, lower-cost methods of accessing potential clients, further lowering the overhead for those services, and adding to the financial heat on full-service firms trying to compete.
In the meantime, on this side of the pond, as mentioned in the prior entry, the ABA is testing the waters on reversing its ruling a decade ago prohibiting outside investors. And North Carolina is attempting to join the District of Colombia, the only place in America where non-lawyer ownership of law firms is allowed.
While this regulatory machinery grinds along in its traditionally slow fashion, the more practical issues of the day are which firms are going to need or want outside investors and who would want to invest in law firms, even if they were invited to legally do so?
We can look to Irwin Mitchell and the Australian firm Slater & Gordon, also a personal injury firm, for the types of practice that may well find the additional financing strategically helpful. As to the latter question, John Wallbillich has come up with at least 5 good reasons a firm like Goldman Sachs would not be interested in a piece of law, and another 10 risk factors that BigLaw would clearly advise a client considering a similar offering to warn investors about.
Plus, there’s the issue of control. In a survey of 31 UK firms (including 26 of the top 50), none of the firms were willing to consider selling more than a 25% ownership to an outsider. In contrast, when a group of private equity firms were asked the minimum percentage of a law firm they would aim to buy, all answered 51% or more.
And it’s not just a matter of control by the lawyers vs. the non-lawyers. Some see investment by outsiders as a way for older partners to cash out or be cashed out, making way for younger partners to take a go at building the firm in a less individual rainmaker-centric way–or perhaps with a more commoditized practice.
There are already ABSs amongst us. The question now is whether they will be giants or dwarfs in the coming legal landscape.