There is increasing evidence that alternative business structures (ABS) are being considered by some substantial existing firms, which may come as a surprise to those who thought it would only have a material impact on high-street law firms. Two Top 50 law firms have recently confirmed that they are actively considering taking external investment and converting to ABS – Kennedys and Field Fisher Waterhouse.
Legal Week has reported that FFW is bringing in an external body to value the business with a view to potentially seeking external investment during the next financial year.
Valuation of law firms is not an easy process as it requires, amongst other things, a detailed understanding of what remuneration policies would look like under an ABS structure – these need to be fundamentally different from the usual income-stripping model currently operated by most law firms, and comprise elements of both income and capital. It is certainly not a simple exercise to design something which will work to motivate and attract lawyers, whilst at the same time allowing a collegiate culture to flourish. The difficulty is that as this is such new territory for law firms, there are no easy templates to follow, so to some extent law firms are going to have to reinvent the wheel. On the face of it, it may appear simple, but when you overlay complexities such as liquidity for future share repurchases, the issue actually becomes very complex.
If valuations are to be worth the paper they are written on, these issues need to have been thrashed out in detail. But of course firms can't take external investment without having a sensible view on value. FFW and its valuers will clearly have their work cut out in leading the way on this, but others are bound to follow.
No comments:
Post a Comment