"Goldman Sachs on line 1, Blackstone Partners on line 2—they both want to buy 20% of the firm."
Could that be a scenario you, or your successors, will be facing some day? In the UK, something very like it is already happening. Thanks to the Clementi Commission reforms, which will take effect next year, public investment in law firms will be legal; indeed, law firms could hypothetically take themselves through an IPO. And it’s not just public investors, but partners bearing money of all types: Firms could join forces with investment advisors, management consultants, commercial real estate brokers, wealth management specialists and private bankers, etc., etc.
According to Legal Week, Goldman Sachs, Rothschild, and other smaller investment houses have been contacting "major City firms…to gauge their interest in outside investment." Indeed, we have positive confirmation that these firms have been contacted:
- Allen & Overy
- Ashurst
- Berwin Leighton Paiser
- CMS Cameron McKenna
- Lovells
- Macfarlanes
- Olswang
- Simmons & Simmons; and
- Taylor Wessing
Have these firms taken leave of their senses? What could possibly be in it for them?
I have news for you: The firms are taking the bankers’ calls, and I predict—with, in the immortal words of the late Drexel Burnham, when it proposed to underwrite a sub-par borrower’s junk bonds, "a high degree of confidence"—that we will see just such investments occur almost as soon as the lid comes off.
For one thing, the firms themselves are not evincing what I’d call stern resistance even at this early stage. As the managing patner of Taylor Wessing put it: "We have partners looking at the issue of external investment but we are currently sitting in the’not totally convinced’ camp."
"Not totally convinced"?! Give them another year to think about it, before it can actually happen of course, and "not totally convinced" is going to edge into "terribly flattered, and yes we don’t mind if we do."
Meanwhile, the head of corporate banking at Olswang also seems to be enjoying the blandishments: “It is definitely something that is being touted around. The idea is for investors to have a fixed income. They will be looking at law firms like utilities – by and large law firms are not going to go away and they produce the closest thing to a guaranteed return.”
My take on it is that we lawyers learn (to paraphrase Oliver Wendell Holmes), if not by logic, by experience. And we have all seen what happened when the "Big Bang" in London and in New York deregulated securities broker-dealers: Those that did not quickly pump up their balance sheets constitute a roster of names now in the netherworld.
You differ? Trading on a global platform is nothing if not capital-intensive, while law firms are nothing if not labor-intensive? Fair point. But one can make savvy investments in labor, as well, and in developing a cross-border technology and infrastructure platform that can provide lasting competitive advantage to your professionals and your clients.
The fun part is that about a year from now the gloves will come off. I for one can’t wait to see what happens.
