Legal Business

Comment: It’ll take more than a float to make DWF the new DLA

Comment: It’ll take more than a float to make DWF the new DLA

Regular readers will have to forgive two columns in one issue on capitalising law firms but the day I write this piece DWF has finally set out its stall for that much-touted public float. As can be gleaned from last autumn’s cover feature on law firm IPOs, there is a considerable scepticism regarding the rhetoric surrounding DWF’s planned float, which, if it goes ahead, would be on the main market.

Despite initial talk of £1bn valuations, even the more modest £400m-£600m range some were circulating is seen as a huge stretch by a number of the advisers that have worked in this area.

The reasons for caution are obvious: DWF has a high equity partner/fee-earner leverage, low margins for a top 50 practice, high debt levels for a law firm and, until recently, was demonstrating pedestrian levels of organic expansion in its core UK business. After all, it’s not as if two of its core markets – insurance and employment – are high-growth or high margin areas. While growth has apparently picked up in the last two years alongside a sustained international push, a sizeable chunk of this appears to be through bolt-ons rather than a buzzing underlying business.

And, as predicted, DWF’s float will require partners to give up a huge chunk of cheese to increase the core corporate profit pool – 60% in the case of equity partners, an eye-watering amount, even if it should come back via dividends and bonus schemes. It’s just as well partners are agreeing to a five-year lock-in because that’s a lot of capital to put at risk.

DWF’s float will require partners to give up a huge chunk of cheese to increase the core corporate profit pool.

Moreover, many legal veterans are yet to be convinced by DWF’s sledge-hammer subtle attempts to replicate the DLA Piper phenomena without the benefits of DLA’s quality mid-market finance/disputes spine. This is not the flux of the 1990s and early 2000s, when the legal pecking order was in constant churn – repeating the Knowles glory days is a huge ask even with Sir Nigel now working at DWF.

Then there is the wider debate of how well public floats fit the model of law firms. In many cases the answer appears to be: ‘not very well’, with the exception of firms focused on volume work and the building of new law business models (which, to be fair, sounds like DWF).

While it is easy to see the case for fresh means of generating capital, at first glance retaining some profits (see Pritchard), securitising income on volume businesses, or floating New Law arms in which partners retain an equity stake appear more viable options for many major firms.

Nevertheless, DWF’s float will be a significant moment for the legal industry, attracting attention far beyond these shores. If nothing else, DWF must be saluted for daring to put its convictions to the test. In a profession that currently does a far better job of talking up its fresh-thinking than delivering real innovation, that must carry some weight and will alone garner much free publicity.

But as the long-term legacy of Knowles’ career increasingly demonstrates, as valuable as style can be, it has to be consistently kept in balance with substance. And that balance DWF has yet to establish.

alex.novarese@legalease.co.uk

For more on DWF’s float, see No free lunch – Will law firm IPOs be the next big thing?

Legal Business

It’ll take more than a float to make DWF the new DLA

It’ll take more than a float to make DWF the new DLA

Regular readers will have to forgive two columns in one issue on capitalising law firms but the day I write this piece DWF has finally set out its stall for that much-touted public float. As can be gleaned from last autumn’s cover feature on law firm IPOs, there is a considerable scepticism regarding the rhetoric surrounding DWF’s planned float, which, if it goes ahead, would be on the main market.

Despite initial talk of £1bn valuations, even the more modest £400m-£600m range some were circulating is seen as a huge stretch by a number of the advisers that have worked in this area.

Legal Business

Hope floats: DWF seeks £75m from expected March IPO

Hope floats: DWF seeks £75m from expected March IPO

DWF is planning to raise around £75m in an expected listing on the London Stock Exchange next month.

The firm said today (8 February) it expects to have a free float of at least 25% of its issued share capital following the initial public offering (IPO), with a final offer price announced following a marketing and book-building process.

Raising £75m would make it the largest law firm listing to date, ahead of the £50m Knights rose in June last year. The firm says it is targeting a dividend of up to 70% of profit after tax.

DWF said the money will be used to repay a portion of members’ capital contributions, to invest in operations and infrastructure, provide working capital for general corporate purposes and to fund potential acquisitions, as well as paying costs related to the float.

Partners who have received shares in the company for the capital they have paid into the business will also be expected to sell shares in the listing, and are expected to hold a majority of shares after admission.

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%.  Each will continue to be self-employed members, effectively a partnership owned by a plc, but instead of being compensated on a variable equity share, each partner will be on a fixed annual share. They will also receive dividend income and participate in an annual partner bonus pool, expected to be 5% of the group’s pre-tax profits.

Chief executive Andrew Leaitherland told Legal Business last week this balance would be similar to current equity partner remuneration: ‘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.’

DWF’s registration document says Leaitherland will be entitled to a basic annual salary of £530,000 with an IPO, with share incentive plans and other perks. Chief financial officer Christopher Stefani’s base salary will be £320,000.

The partners will be locked in for five years, with shares released in tranches of 10% each year following the firm’s financial results in 2020 and a further 10% based on performance. Locked up equity can be released for those considered a ‘good leaver’ while there are provisions to claw back equity for those considered a ‘bad leaver’.

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

Hamish.mcnicol@legalbusiness.co.uk

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

Legal Business

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

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.

Hamish.mcnicol@legalbusiness.co.uk

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

Legal Business

Pre-float DWF hires GC as another litigation funder lists and Burford secures $1.6bn

Pre-float DWF hires GC as another litigation funder lists and Burford secures $1.6bn

DWF has appointed a group general counsel (GC) ahead of its touted London Stock Exchange (LSE) listing early next year.

Litigation finance, meanwhile, has attracted more investor cash after Australian funder Litigation Capital Management (LCM) rose £20m on listing and Burford Capital secured £1.6bn in funding for new litigation investments. 

DWF said today (19 December) former Lucozade Ribena Suntory GC Mollie Stoker will join the firm as GC in January. Stoker is director of business development at Suntory Beverage and Food Europe and was Lucozade GC from 2014 to 2017.

Stoker will join DWF’s executive board and will 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.

The top-25 UK firm said in June 2018 it was considering an initial public offering (IPO), but it has been working with US investment bank Stifel on the float, targeted as a main board listing, since October 2017. The firm is believed to be seeking an early 2019 listing.

While the firm’s revenue has grown 25% over the last five years to £236m for 2017/18, it is struggling for profitability, with a profit per lawyer well below top 25 peers at just £23,000 last year. The profit margin is just 11%.

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

DWF chief executive and managing partner Andrew Leaitherland commented on Stoker’s hire: ‘Her strong background in corporate law, M&A and corporate governance, coupled with a high degree of commercial acumen will be valuable as we continue to grow the business globally.’

Stoker added: ‘This is an exciting time to join DWF. I look forward to supporting the business as it prepares for the next phase of its development.’

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.

Meanwhile, litigation funder LCM has listed on the LSE’s Alternative Investment Market (AIM), raising £20m at a market capitalisation of £56.5m. The firm recently launched its EMEA operations by opening an office in London, led by vice-chairman Nick Rowles-Davies, as well as an office in Singapore.

Rowles-Davies, formerly of Burford, had founded litigation financier Chancery Capital in 2017, but that business is understood to be folding into LCM. LCM recently de-listed from the Australian Stock Exchange and intends to use the £20m to fund its existing portfolio and for new pipeline opportunities.

LCM chief executive Patrick Moloney commented: ‘Being a London listed company positions us to fund an attractive, qualified pipeline of future projects and grow the business through the access to capital and a broadening of our shareholder base.’

He added: ‘Litigation financing is a growing alternative asset class uncorrelated with economic cycles, and we believe that we are now well-positioned to take advantage of the increasing number of opportunities across the sector globally.’

The listing comes shortly after fellow litigation financier, Vannin Capital, pulled its own IPO due to market volatility.

Finally, Burford said it had secured $1.6bn in funding for new litigation investments, following a strategic partnership with an unnamed sovereign wealth fund, a new private investment fund, and its own balance sheet. The wealth fund will provide $667m.

Burford chief executive Christopher Bogart commented: ‘Our success in being able to attract substantial long-term capital positions Burford to sustain its competitive advantage in the global legal finance industry.’

hamish.mcnicol@legalease.co.uk

For more on what tapping the capital markets would mean for major law firms, read our special reportNo free lunch – will law firm IPOs be the next big thing?

Legal Business

Pre-float DWF aims to sustain momentum with exclusive US alliance with 56-partner LA firm

Pre-float DWF aims to sustain momentum with exclusive US alliance with 56-partner LA firm

DWF’s recent eye for international expansion has been extended to the US through an exclusive association with Los Angeles-based Wood, Smith, Henning & Berman (WSHB).

WSHB is much smaller than DWF, with revenue of just $81m and 56 partners across 22 offices in the US, but DWF managing partner and chief executive Andrew Leaitherland says the firms have a number of mutual clients, particularly international insurance businesses.

‘This is a significant move for us which greatly expands our reach in the US,’ he commented. ‘In particular, we both have strong insurance practices and already support some of the world’s largest insurers.’

The top 25 UK law firm added 18% to its top line in the year to 30 April, for revenue of £236m. It did not disclose profit per equity partner (PEP) but this year’s LB100 estimates it rose 9% to £327,000.

In June, DWF confirmed it was considering what would become the largest UK law firm initial public offering (IPO) yet. Its recent history has been marked by a spate of office openings in Europe, North America and Asia-Pacific, as well as the acquisitions of legal cost business NeoLaw last June and claims management firm Triton Global.

Leaitherland said DWF had been working on its US growth strategy for some time: ‘We have opened offices or sought association partners where it makes sense strategically and where our clients operate and tell us they need our support.’

Alongside WSHB’s insurance business, the firm provides services in construction, real estate, professional liability, commercial and employment law. It was founded in 1997.

WSHB co-founder and chairman Daniel Berman said the DWF partnership would allow the firm to tap into DWF’s international network and access its Connected Services business: a division of independent businesses which help clients manage risk, reputation, cost, time and resources.

‘Our national platform now provides legal services in almost every state and in the past several years we have recorded double-digit growth of both revenue and lawyers,’ he commented. ‘This will allow us to provide our clients with multidisciplinary teams across different professional and business services in an integrated way.’

hamish.mcnicol@legalease.co.uk

Legal Business

DWF revenue jumps to £236m ahead of stock exchange float

DWF revenue jumps to £236m ahead of stock exchange float

DWF has added 18% to its top line as the thrusting national operator gears up to become the largest UK law firm float yet.

Revenue at the top 25 firm for the year to 30 April, announced today (13 September), was £236m, up from £199m last year. The firm also said profit per equity partner (PEP) increased, without specifying a figure, but this year’s LB100 estimates it rose 9% to £327,000.

DWF announced in June it was eyeing up an initial public offering (IPO) on the London Stock Exchange. Eyebrows were raised at the reported £1bn price tag, with a more realistic valuation seen to be in the £400m-£600m range.

Chief executive Andrew Leaitherland (pictured) commented: ‘We are already positioned positively for the next phase of our development, but we believe an IPO would be one of the options that would allow us to achieve our strategic objectives, notably by further increasing our capacity to invest in IT and Connected Services, while also enhancing our ability to attract and retain the best talent.’

DWF’s recent history has been marked by a spate of office openings in Europe, North America and Asia-Pacific, as well as the acquisitions of legal cost business NeoLaw last June and claims management firm Triton Global. It also brought in the man who spearheaded DLA Piper’s meteoric rise from regional upstart to global giant, Sir Nigel Knowles, as chair in September last year.

More recently, it hired the brains behind Freshfields Bruckhaus Deringer’s Manchester services hub, Anup Kollanethu, to head a new managed services role. Former DLA chief information officer (CIO) Daniel Pollick also came in to a newly created CIO role.

DWF said it had recruited more than 35 partners, although overall partner numbers have only increased from 279 to 289. The firm also formally launched its Connected Services arm, a division of independent businesses which work alongside the firm’s legal teams to help clients manage risk, reputation, cost, time and resources.

‘This has been another very strong year for DWF, with growth across all of our businesses,’ Leaitherland said. ‘We have prioritised making significant investments which will drive the long-term success of our business and enable us to transform the way legal services are delivered.’

hamish.mcnicol@legalease.co.uk

Legal Business

DWF hires the brains behind Freshfields’ Manchester hub for new managed services role

DWF hires the brains behind Freshfields’ Manchester hub for new managed services role

National operator DWF has bolstered its services clout ahead of a touted stock exchange listing with the hire of Freshfields Bruckhaus Deringer’s well-regarded chief of business operations, Anup Kollanethu (pictured).

Kollanethu, who joined the Magic Circle firm in mid-2015 after 12 years at Aviva Investors, has been appointed chief executive of DWF managed services.

The new role will oversee the development of DWF’s volume and integrated legal services work. This will add to initiatives such as the firm’s Connected Services arm, a division of independent businesses which work alongside the firm’s legal teams to help clients manage risk, reputation, cost, time and resources.

Kollanethu was the director of Freshfields’ combined legal and business services centre in Manchester, opened as part of the City giant’s 2015 shake-up which saw the mass relocation of support roles to the north. More than 700 jobs have been created in Manchester since.

DWF chief executive Andrew Leaitherland cited Kollanethu’s extensive experience in business transformation and managed services, which has included a stint as managing director of transformation and global shared services at Aviva Investors, as integral to the hire.

Leaitherland commented: ‘A significant part of delivering value is about delivering a full-service provision as a legal business, which, along with complex law and Connected Services, includes the volume work we deliver for clients in the UK and internationally. The expertise that Anup brings to this role will allow us to create a sustainable platform for future growth, and he will play a key part of how we provide integrated services to clients globally.’

Kollanethu added: ‘I am delighted to join an ambitious business like DWF, which has responded to the evolving expectations of clients with an innovative and commercially-focused approach to client service, and I look forward to working with a fantastic team to build on a successful strategy.’

Kollanethu’s experience in business change projects comes as DWF gears up to be the largest UK firm float yet. In June the firm confirmed it was eyeing a London Stock Exchange listing later this year. DWF also recently brought in former DLA Piper chief information officer (CIO) Daniel Pollick for a newly created CIO role.

DWF’s float reportedly came with a £1bn price tag but, given its 2016/17 revenue of £199.3m, and profit of £45.5m, a more realistic valuation would be in the £400-£600m region. DWF’s borrowings have also increased in recent years to exceed £40m in bank debt, a relatively high level for a law firm.

The firm’s recent history has been marked by a spate of office openings in Europe, North America and Asia-Pacific, as well as the acquisitions of legal cost business NeoLaw last June and claims management firm Triton Global.

DWF’s IPO would be the sixth UK float, and the largest by some distance since Slater & Gordon’s troublesome listing on the Australian stock exchange more than a decade ago.

hamish.mcnicol@legalease.co.uk

Legal Business

Thrusting DWF primed for largest law firm listing yet but eyebrows raised at touted price

Thrusting DWF primed for largest law firm listing yet but eyebrows raised at touted price

Thrusting national operator DWF is gearing up to be the largest UK firm float yet with a London Stock Exchange listing later this year. The top 25 UK law firm initially went into standard non-denial mode today (15 June) over reports it is aiming to float later this year with a supposed price tag of £1bn.

The presence of City PR shop Finsbury, which was today distributing ‘background briefing points’, signalled that DWF was being positioned for an offering. Within an hour the firm anyway changed its public position to issue a statement (see below).

Such a valuation would raise eyebrows in the profession, given DWF’s 2016/17 revenue of £199.3m, with profit last year slightly down to £43.5m from £45.5m. Profit per equity partner (PEP) fell 6% to £300,000. Even valuing the business at a generous 15 times earnings would suggest a valuation of well under £700m. Standard valuation models for such a business would be in the £400m-£600m region.

The 1,200-lawyer practice had 70 equity partners last year, with a further 154 salaried partners. Turnover was up about 8%, though a float would also focus attention on the firm’s borrowings, which have increased in recent years to currently exceed £40m in bank debt, a relatively high level for a law firm. A note in the firm’s latest annual report says the firm held discussions with its banks about future borrowing requirements and while no formal bank facility documentation had been completed, the lenders intended to make these available.

DWF’s recent history has been marked by a spate of office openings in Europe, North America and Asia-Pacific, as well as the acquisitions of legal cost business NeoLaw last June and claims management firm Triton Global.

It also brought in the man who spearheaded DLA Piper’s meteoric rise from regional upstart to global giant, Sir Nigel Knowles, as chair in September last year. DWF is seen as a firm which has long modeled itself on Knowles’ former parish. Knowles was also known to have been intent on taking the legacy DLA public before the firm instead opted for the three-way US merger that created DLA Piper.

One former partner expressed surprise at the move and the touted £1bn market capitalisation, noting relatively low profitability for a top 50 UK law firm. ‘I am sitting here struggling to understand what the hell is going on,’ he added: ‘We looked at a flotation three years ago and decided against it, now they’ve obviously had a change of heart. If [chief executive Andrew] Leaitherland was playing poker, he’s just gone all in.’

Another former DWF veteran noted previous discussions around attracting private equity investment. He commented: ‘It’s very efficiently managed but debt is an issue. They have a consistent profitability track record but I’m not sure the international offices have been working as well yet.’ He noted that a float could be used to pay down debt, ‘wiping the slate clean’.

DWF’s IPO would be the sixth UK float, and the largest by some distance since Slater & Gordon’s troublesome listing on the Australian stock exchange more than a decade ago.

DWF’s statement: ‘To enable us to deliver on our strategy and for us to better serve our clients through an increasingly international and differentiated offering, we have plans to increase our investment in information technology and connected services. The current corporate structure of our business continues to work very well and has enabled us to deliver our key business objectives with record growth this year – but as a business which is committed to “doings things differently” it is also important to consider alternative structures which can set us apart from other legal businesses. To that end, we have been considering a number of strategic options for our business, including the possibility of an IPO on the London Stock Exchange. If we were to proceed with an IPO, we believe that it would enable us to achieve our strategic objectives more quickly, while also enhancing our ability to attract and retain the best talent and to incentivise our people by aligning them through offering ownership within the business. We are focused on an IPO. However, a number of options are available to us, and we can still continue to build on our success to date, with the support of our clients, under our current structure. For the time being, it is very much business as usual for us, our clients and our business partners as we continue to focus on delivering the excellent service which our clients have come to expect of us.’

hamish.mcnicol@legalbusiness.co.uk