A new legal landscape

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A new legal landscape
The first alternative business structures will be launched in
England and Wales next month. What will deregulation of the
legal industry look like?
Horizons
Alternative Business Structures
By Neil Rose
THOMAS DANNENBERG
I
t is, says leading legal futurist
Professor Richard Susskind, “unimaginable” that investors and entrepreneurs will ignore the opportunities presented by the UK legal market as
deregulation approaches.
Certainly the world will be watching
England and Wales this autumn as alternative business structures (ABSs) go live
and the radical relaxation of law firm
ownership becomes a reality.
Simply put, ABSs will enable lawyers
and non-lawyers to share the management
and control of a business which provides
legal services to the public. ABSs will
allow external investment in and ownership of law firms.
As of this writing, aside from the Co-op
and DAS — a leading legal expenses insurer, which has even named the law firm it
intends to buy — most non-lawyer businesses are keeping their intentions quiet.
The law only reserves a relatively small
corner of legal services exclusively to
lawyers, so much can already be done by
non-lawyers as it is, allowing the Co-op to
build a £25-million legal business in less
than five years.
Some major financial institutions — as
well as the roadside recovery Automobile Association — have dipped their toes in the water by providing some online document assembly services backed
up by a legal helpline, but whether they will expand
beyond this is as yet unknown.
The area where most interest is expected is consumer work that lends itself to so-called commoditized or volume services, such as conveyancing, personal injury and probate.
Already the leading probate providers are not law
firms (such as the Co-op) — one has broken down the
probate process into 166 discrete tasks, very few of
which need to be done by qualified lawyers.
Law firms are similarly being coy, with the notable
exception of Irwin Mitchell — a large national practice which focuses on consumer legal services, particularly personal injury work, but is growing its commercial practice rapidly too. It has announced its
intention to accept external investment, but has not
Septembre 2011
yet decided what form this will take, or explained
how it will use the money.
The mood music of innovation orchestrated by
ABSs means there are also efforts from within the
profession to find new ways of delivering legal ser-
Simply put, ABSs will enable lawyers and
non-lawyers to share the management and
control of a business which provides legal
services to the public.
vices. The most high profile is QualitySolicitors, a
national network of existing law firms that has
launched a television advertising campaign and
struck a deal with one of the country’s largest retailers to place “Legal Access Points” inside their stores,
where customers can engage with their local member
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firm and make appointments.
QualitySolicitors is also more aggressively pushing fixedfee products, and even opening offices on Saturdays —
which is virtually unheard of among UK lawyers.
Another by-product of deregulation is that individual firms
are taking a close look at external investment as a way to
finance growth. A survey of 51 of the top 200 law firms by
consultancy ABS Advisory Partners found that 12 per cent
thought it “very likely” or “likely” that they will seek direct
external investment in the next five years, with a further 44
per cent saying it is “possible”. The same number described
the prospect as “unlikely”.
What is less certain is whether there will be any interest
among outside investors.
Solicitor Paul Harding, who heads ABS Advisory Partners,
says he is “absolutely convinced” that private equity firms are
getting “cold feet” because of the difficulties they foresee from
investing in partnerships.
Un nouvel environnement juridique
S
elon le futurologue juridique
Les premières ABS (Alternative business Selon Harding, les cabinets juridiRichard Susskind, il est « inques ne comprennent pas vraiment
structures) verront le jour très bientôt
imaginable » que les invesce qu’un investisseur exigerait
en Angleterre et au pays de Galles.
tisseurs et les entrepreneurs puisd’eux : « Ils espèrent créer un capisent se détourner des occasions
De quoi aura l’air l’industrie des services tal-valeur qu’ils peuvent vendre et
présentées par la déréglementation
acheter. Ils ne regardent pas plus
juridiques après la déréglementation?
imminente du marché juridique en
loin que ça. Ils auront tout un choc.
Grande-Bretagne.
Si des fonds leur sont offerts, ils
entente avec l’un des plus grands détaillants
De fait, dans le monde entier, les yeux se
n’aimeront pas les conditions. »
pour installer dans ses magasins des « points
tourneront vers l’Angleterre et le pays de
Un courtier en valeurs mobilières estime
d’accès juridique » où les clients peuvent
Galles au moment où des non-juristes pourà 6,7 milliards de livres anglaises la valeur
établir le contact avec les cabinets membres.
ront, pour la première fois, devenir propriéboursière des cinq cabinets juridiques qui
QualitySolicitors fait aussi une promotion
taires ou gestionnaires de cabinets juridiques
forment le Magic Circle de Londres (environ
plus agressive de produits à frais fixes, en plus
ou d’autres types d’entreprises (ABS) offrant
3,9 millions de livres par associé). La maid’ouvrir des bureaux le samedi — une prades services juridiques au grand public.
son de courtage Peel Hunt croit qu’il y
tique presque inconnue en Grande-Bretagne.
Les secteurs suscitant le plus d’intérêt
aurait des avantages économiques à être
Autre produit dérivé de la déréglementasont ceux qui se prêtent à un service de
cotés en bourse dans un contexte où le motion, des cabinets juridiques envisagent d’inmasse — les transactions immobilières, les
dèle des cabinets d’associés a peut-être atviter l’apport d’investisseurs extérieurs pour
préjudices personnels et l’homologation des
teint ses limites.
financer leur croissance. Dans un sondage
testaments. Les principaux fournisseurs de
Pour le moment, les cabinets ayant le
récent de 51 des 200 principaux cabinets
services d’homologation (tels la Co-op, le
plus à gagner d’une présence boursière sejuridiques britanniques, 12 % des répondants
plus important réseau de salons funéraires
raient ceux qui ont des projets de croissance
estimaient une telle stratégie « très probable »
en Grand Bretagne) ne sont pas des cabiextérieure.
ou « probable ». Une autre tranche de 44 % la
nets juridiques.
Entre-temps, John Llewellyn, directeur des
jugeait « possible ».
Pour le moment, tant du côté des entrefusions et acquisitions à la banque d’invesL’intérêt des investisseurs apparaît moins
prises non juridiques que chez les cabinets
tissements Espirito Santo, a récemment précertain. Paul Harding, directeur de la société
d’avocats, presque tous restent en mode
dit que les investisseurs externes s’amèneABS Advisory Partners (auteurs du sondage
attente, sauf pour la Co-op, qui entend
ront « bien plus rapidement » que prévu à
précité), se dit « absolument convaincu » que
devenir une ABS, et le grand cabinet
cause du flux monétaire très fort des cales sociétés de fonds de risque privées ont la
juridique national Irwin Mitchell, qui a
binets juridiques et parce que ces derniers
frousse à cause des difficultés perçues d’inannoncé son intention d’accepter des inpossèdent les solides qualités recherchées
vestir dans des cabinets d’associés.
vestissements de non-juristes sans préciser
par les investisseurs.
« Un des principaux investisseurs a disla forme et le fonctionnement de cette proUn cabinet australien, Slater & Gordon, a
cuté avec plus de 100 cabinets et trouvé le
priété extérieure.
bien réussi à la Bourse et zieute présentement
projet d’entreprise moins attrayant que
À l’intérieur même de la profession jurile marché britannique des services juridiques.
prévu, explique-t-il. De plus, les cabinets
dique, avec l’avènement des ABS, l’heure sera
« Nous n’avons pas de plans immédiats,
haut de gamme qui intéressent ces inà l’innovation chez certains. À preuve,
déclare l’associé directeur Andrew Grech,
vestisseurs privés ne veulent pas ou n’ont
QualitySolicitors, un réseau existant de cabimais si la bonne occasion se présente, nous y
pas besoin d’argent — ils peuvent l’obtenir
nets juridiques, vient de lancer une campagne
penserions — ce serait imprudent de ne pas
à la banque. »
publicitaire télévisée et de conclure une
le faire. » N
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N AT I O N A L
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A new model: The many faces of ABS
N
obody is sure what to expect following the launch of the first
ABS next month. There is a wide
range of possible models. So here are
some of those already identified by the
lead regulator, the Solicitors Regulation
Authority (SRA):
• A wholly externally owned firm where
the owner has no interest in the supply of
the ABS’s services. The ABS would be a
ring-fenced legal services arm of the external parent owner. The ABS could take
advantage of the parent’s corporate brand
(eg, ‘Nike Law’).
• A wholly externally owned firm where
the owner has an interest in the supply of
the ABS’s services because it wants to
cross-sell non-legal services.
• A multi-disciplinary practice (MDP) — a
one-stop shop comprising partners from
legal and other professions providing
legal and other services to clients, for
example a niche property practice with
surveyors, architects, town planners,
property managers, builders, decorators,
furniture removers and conveyancers.
• External ownership with legal and nonlegal services. Using a corporate brand,
for example, one firm provides funeral
services, will-writing services and probate
services. This is called the “Co-op model”,
because major retailer the Co-operative
(which is also the largest funeral provider
in the UK) has already announced its
intention to become an ABS.
• Private equity investment.
• Floated company.
• ‘Hub and spoke’. The non-licensed hub
would be an administration company for
back-office services, but could include some
intellectual services. The hub would receive
a service charge from the regulated spokes
which provide the legal services, perhaps
under a national franchise or network
arrangement. The hub could be licensed,
and may need to be in some cases.
• Not-for-profit organizations providing
legal services, such as charities.
• In-house teams — which hitherto have
only been able to provide advice to
their employers — marketing their services to others. This is particularly likely
at local government level due to huge
cuts to budgets.
“One leading funder has discussed direct investment with and advisory house Peel Hunt says there is “a real economover 100 firms and found the business proposition much ic case” to be made for public market listing — even for the
less attractive than originally anticipated,” he explains. largest firms, “where the limits of the partnership model
Further, the kind of high-end firms that private equity is may be being reached.”
really interested in “don’t want or need” the money — they
However, the “clear frontrunners” for a stock market listcan go to their banks.
ing at the moment are those
The very largest firms, with
with external growth plans,
“[Law firms] are thinking about creating
their offices around the globe,
mid-tier firms with scale and
are also worried about the capital value that they can buy and sell, and not those with “a volume business
impact on their businesses of
looking any further than that. They’re in for [and] no star culture.”
what has generally been a hosMeanwhile, John Llewellyna shock. If money is made available, they
tile international reaction to
Lloyd, head of mergers and
won’t like the terms.”
ABSs. The Solicitor’s Regulation
acquisitions at Espirito Santo
Authority — which has reportInvestment Bank — the bank
— Paul Harding, ABS Advisory Partners —
ed “strong interest” in ABSs
advising Irwin Mitchell — prefrom overseas investors — has begun to engage with regulators dicted recently that external investment will happen “a lot
and bar associations around the world to explain exactly what quicker than most people envisage” because there is a strong
is happening.
appetite among investors given law firms’ “very strong cash
Many of those who told the survey they are likely to seek flow and host of solid investable qualities.”
investment were at the sub-£20-million turnover level, and
Law firms face hurdles with listing, such as the partnership
cited the need to support volume businesses — which is also structure, the discipline of having external investors around
the area of interest of those private equity firms that are still the table, public scrutiny and having their share price buffeted
looking at the market, Harding says. But investors are consid- by forces well beyond their control.
ering whether it would actually be easier to set up their own
But as proven by the global pioneer of law firm listings —
commodity businesses, or investing in outsourcing operations Australia’s Slater & Gordon — these can be overcome. In fact,
— effectively looking further down the supply chain.
to prove how quickly your horizons can stretch once you have
Harding says law firms do not really understand what an gone public, Slater & Gordon is eyeing the UK market.
investor would require of them. “They’re thinking about cre“Are we looking with interest at what’s happening in
ating capital value that they can buy and sell, and not looking England and Wales? Of course we are,” said managing director
any further than that. They’re in for a shock. If money is made Andrew Grech last year. “We have no immediate short-term
available, they won’t like the terms.”
plans, but if the right opportunity arose, we would consider it
One stockbroker has valued the five so-called magic cir- — it would be careless of us not to.” N
cle City law firms at £6.7-billion if they went public —
equivalent to £3.9-million for each partner. Stockbroking Neil Rose is a journalist based in London.
Septembre 2011
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