UK’s publicly listed law firm experiment at risk of unravelling
2020 will go down in history as the year of Covid-19, the tragic loss of life, lockdowns, social distancing, zoom meetings, face masks and obsessive hand washing. In the UK it might also become known as the year that saw the unravelling of the ‘gold rush’ of law firms listed on the London Stock Exchange. If such an unravelling does occur, it will be hard to put all the blame on the firms themselves. It will be blamed on the economic impact of Covid-19.
The wave of listings began with Gately in 2015. In 2017 and 2018 firms listing included Knights, Rosenblatt, Keystone and Gordon Dadds. These were merely a prelude for the biggest listing of them all, DWF in March 2019.
It is even possible that an unravelling might be on a last in first out basis.
From Gately to DWF, the entire premise of the listings is that partners will earn dividends and capital gains instead of big annual drawings. It’s not happening. Gately, the first to list and arguably one of the best run of the listed law firms, has cancelled its most recent planned dividend. Between 7 February 2020 and 29 May 2020 Gately’s share price fell by 33.5% (from 218 to 145).
The fall in value of Gately shares has been mild compared to those of DWF and The Ince Group (previously known as Gordon Dadds). Ince’s share price fell off a cliff in January 2020, even before the Covid-19 economic disruption. On 6 January 2020, Ince’s share price was 115.10. On 29 May 2020 it was 24.2. Clearly a lot worse than Gately’s mild 33% fall.
DWF had barely been listed for 12 months. It had made seminal acquisitions. In a sense it was just getting started when it came up against Covid-19. The graph of its share price is one of those pictures that tell a thousand words.
On Friday 29 May 2020 DWF announced the departure of its CEO Andrew Leaitherland who had been with the firm for more than 20 years and was instrumental in its growth and public listing. His replacement is the renowned Sir Nigel Knowles who during his tenure as leader of DLA Piper and its legacy firms, DLA Piper revenues grew from £52 million to in excess of £1.5 billion. Sir Nigel received a knighthood in 2009 in recognition of his services to the legal industry.
If things don’t start turning around for the listed law firms, key fee earners will be in a position of not receiving dividends, see little prospect of capital growth in their equity and at the same time be receiving below-market salaries. When their contracts permit them to make a move, an unravelling will be a real risk.