Legal Business Blogs

DWF equity partners stump up 60% profit share to fire up planned float

DWF’s equity partners will be paid 40% of what they used to earn in an anticipated stock exchange listing, although the resulting dividend yield on shares is expected to leave their total compensation not ‘a million miles apart’ from current remuneration.

DWF today (31 January) released further details ahead of an anticipated London Stock Exchange main board listing in the first quarter of this year. The firm’s full registration document is expected to be published later today, awaiting approval from the UK Financial Conduct Authority (FCA).

The top 25-UK law firm’s equity and non-equity partners – 68 and 241 respectively last year – are participating in the float, although each will continue to be self-employed members, effectively a partnership owned by a plc. Instead of being compensated on a variable equity share, however, each partner will be on a fixed annual share and receive dividend income and participate in an annual partner bonus pool, expected to be 5% of the group’s pre-tax profits.

The upfront equity reduction for equity partners is 60% – profit per equity partner was £327,000 last year – while the profit share of non-equity partners’ is 10%. Law firm floats need to create a corporate profit for investors separate to partners’ drawings. At least 25% of its equity is expected to floated.

DWF chief executive Andrew Leaitherland told Legal Business: ‘If you’re an equity partner, you’re going to be on a fixed profit share which is 40% of what you used to earn and then in addition to that you’ll get dividends based on the capital you’ve got allocated to you.’

Asked whether the balance would be similar to current equity partner remuneration, Leaitherland said: ‘They won’t be ahead of what they were but they’re not going to be a million miles apart. The difference is they will have a capital opportunity rather than just an income opportunity.’

Leaitherland could not reveal what the group’s forecast earnings before interest, tax and depreciation and amortisation would be, however, because of the ongoing IPO process. This figure would provide an indication of what market valuation the firm might achieve, with Leaitherland not able to provide details on the figure, either.

He commented: ‘We’ve been out there for numerous weeks meeting with potential investors and they like what they see, which is great.’

A valuation in the region of £400m-£600m has previously been tipped  but relatively low profitability suggests a valuation closer to £250m-£300m, based on previous law firm floats.

Each partner is also on a phased five-year lock-in which expires on the announcement of the group’s financial results in April 2024.  Equity partners will be able to withdraw a maximum of 20% of their capital from the business over that time.

The firm has put considerable investment into the IPO, which would be the sixth, and likely largest, UK law firm float to date. It has been working with US investment bank Stifel on the float since October 2017.

DWF also announced today its revenue for the six months to 31 October 2018 was up 18% to £133.4m, with 14% of that said to be organic growth – excluding any acquisitions made in the 12 months prior.

In December, the firm hired former Lucozade Ribena Suntory GC Mollie Stoker to join its executive board and act as counsel to senior management on the firm’s M&A activity. She will also become company secretary if DWF proceeds with its LSE listing.

Stoker follows DWF securing in October an exclusive relationship with $81m-revenue US firm Wood Smith Henning & Berman, as well as the hire of one of the architects behind Freshfields Bruckhaus Deringer’s Manchester legal services hub, Anup Kollanethu. DWF also turned heads with the 2017 appointment of former DLA Piper leader Sir Nigel Knowles as its chairman.

(£) For an in-depth assessment of law firm IPOs see last year’s cover feature ‘No free lunch’