Legal Business

International round-up: DWF recruits five partners for Düsseldorf as CMS expands in Africa

International round-up: DWF recruits five partners for Düsseldorf as CMS expands in Africa

DWF has made its second post-IPO international office opening, hiring a five-partner team in Germany, while CMS has added two firms in South Africa and Kenya to its network.

DWF said today (7 October) it was opening its fourth German office in Düsseldorf after recruiting the entire office of Marccus Partners, consisting of 10 staff – including five partners. Marccus – which is not listed in any of the recognised legal directories for Germany – specialises in company law, M&A, insolvency, banking and finance, real estate and tax. One of the hires, Norbert Knüppel, will be DWF’s executive partner of the new office.

The opening adds to DWF’s Berlin, Cologne and Munich offices and increases local headcount to more than 80 people. DWF Europe chair, Ulrich Jüngst, commented: ‘They are very highly regarded and will be an excellent addition to our German business, significantly strengthening our corporate practice domestically as well as our ability to advise on cross-border transactions throughout Europe. This move further builds our international footprint, demonstrating continued delivery on this key IPO objective.’

Knüppel added: ‘We were attracted to join DWF’s rapidly growing business with a strong reputation for innovation. It is investing in its national and global capabilities and we look forward to playing our part in DWF’s continued impressive expansion.’

The Düsseldorf opening is DWF’s second international office launch since the firm listed on the London Stock Exchange in March . In May, the firm expanded into Poland with a £3m acquisition of K&L Gates’ 11-partner Warsaw office.

The firm’s first full-year financial results since listing, reported in July, showed revenue rose 15% to £272m in the 2018/19 financial year, of which 12.5% was attributed to organic growth. But profit after tax fell 42% to £12.2m, impacted by the £20m cost of the IPO.

Also today, CMS added 20-lawyer RM Partners in Johannesburg and 35-strong Daly & Inamdar Advocates in Nairobi and Mombasa. The deals mean the firm has passed the 4,800-lawyer mark, counting 75 offices in 43 countries.

CMS is the second international firm to expand in Africa in the space of a few weeks. Last month, Dentons announced it was merging with five firms in Angola, Morocco, Mozambique, Uganda and Zambia, adding 54 lawyers to its African footprint.

Hamish.mcnicol@legalbusiness.co.uk

Legal Business

‘Money well spent’: DWF revenue climbs 15% as £20m IPO cost weighs on profit

‘Money well spent’: DWF revenue climbs 15% as £20m IPO cost weighs on profit

DWF chief executive Andrew Leaitherland (pictured) says the £20m cost of its London Stock Exchange listing is ‘money well spent’ after the firm reported double-digit revenue growth and set out its ambitions for further expansion.

The firm said today [31 July] its revenue rose 15% to £272m in the 2018/19 financial year, of which 12.5% was attributable to organic growth. Earnings before interest, tax, depreciation and amortisation rose 9% to £33.6m, but profit after tax fell 42% to £12.2m, impacted by the cost of March’s IPO.

The international and Connected Services businesses provided the thrust, up from relatively small bases by 79% and 23% respectively, for revenue of £54m and £18.5m. The firm grew from 26 international partners in 2017 to 96 in 2018, expanding heavily in Australia where it now has 28 principal lawyers (partner equivalents) and 150 staff.

Following this financial period, the firm also made a £3m law firm acquisition in Poland, with its sights now set on further markets including the USA, Canada, Hong Kong, Spain and the Netherlands.

Leaitherland told an analysts’ call the IPO process – which took more than a year – had been one of the longest years of his life because he had been restricted from M&A activity over that time. The shackles were now off, however, telling Legal Business he would be focusing on acquisition opportunities predominantly internationally and for the Connected Services business, with some possible deals in the UK.

The firm has paid down £19m of debt during the financial year to sit at £35.3m, with Leaitherland saying the firm had about £55m of headroom in its core facilities it could deploy for acquisitions.

‘We obviously kept conversations progressing and alive during the IPO but looking back, you cannot underestimate just how much time was consumed in terms of getting through that process,’ he told Legal Business. ‘We can just get cracking. I’ll be very focused in terms of M&A opportunities and capitalising on the pipeline that we’ve already got.’

That time-consuming process was also revealed today to have cost about £20m, of which £12.6m impacted the firm’s profit with the remainder funded by reserves. Leaitherland said a lot of that cost was attributable to regulatory advice it obtained engaging with regulators in different jurisdictions on how the listed law firm structure can operate in other countries.

‘I don’t think I’ve ever done a transaction where [the cost has] come in as I expected it to be, an IPO has unexpected twists and turns and unexpected complications,’ he told Legal Business. ‘We listed on the main market of the London Stock Exchange, that’s not a cheap process.’

But he added: ‘The regulatory advice has future-proofed the structure, it’s money well spent. We’ve got a pretty good idea of what we can do where and how.’

Leaitherland also highlighted the opportunity he sees for DWF’s Managed Services business. Earlier this month this division landed the firm its first major post-IPO client win after securing a five-year managed legal services mandate for BT’s insurance and real estate work, seeing up to 40 lawyers from BT’s in-house legal team transfer to DWF by the end of this year.

DWF was chosen ahead of 25 other providers, with Leaitherland saying he was restricted from commenting on the value of the deal but suggesting it had moved DWF from being a top ten provider of legal services to BT, to a top three. Managed services is now led by former RBS head of artificial intelligence for the bank’s commercial and private banking business, Mark St John Qualter, after Anup Kollanethu left the firm after less than a year in June.

‘There’s more to do, we have a really strong pipeline in terms of potential contracts in that space,’ Leaitherland said. ‘[The BT deal has] definitely stimulated interest and given confidence to people that that’s how things can be done.’

hamish.mcnicol@legalease.co.uk

Legal Business

‘An incredible opportunity’: DWF flexes New Law arm with BT managed services contract

‘An incredible opportunity’: DWF flexes New Law arm with BT managed services contract

DWF has landed its first major post-IPO client win after securing a five-year managed legal services mandate for BT’s insurance and real estate work.

Up to 40 lawyers from BT’s in-house legal team of nearly 400 staff could transfer from BT to DWF by the end of this year as part of the deal, which saw DWF chosen ahead of 25 other providers following a year-long process.

The managed legal services contract means DWF will provide BT’s insurance and real estate legal services largely through its Managed Services arm, which recently appointed former RBS head of artificial intelligence for the bank’s commercial and private banking business, Mark St John Qualter, as chief executive. He took over from Anup Kollanethu, who left the firm after less than a year in June.

BT group general counsel (GC) Sabine Chalmers (pictured), who joined the telecommunications company just over a year ago, told Legal Business that she and her leadership team had assessed how BT’s legal function was providing services shortly after she arrived.

Following those conversations, BT decided there were two brackets of lawyers it needed: those that necessarily required company and industry expertise, such as regulatory and privacy lawyers, and others which would benefit from having exposure to a wider variety of clients, such as insurance claims and property.

That was coupled with what Chalmers saw as a greater ranger of legal service offerings in the market, and transformation within the legal industry which had seen firms develop their own New Law-style businesses.

The process identified 26 potential partners, but DWF was ultimately considered the best fit after Chalmers and her team spent a day with the firm recently.

‘It was a very rigorous process, we looked at not just the offerings, but how they were providing them in terms of culture and the work environment,’ she told Legal Business. ‘Law firms are going through a period of tremendous transformation, and the trend of offering managed services is only going in one direction. The folks that do it best will take a greater share.’

Qualter would not specify how big DWF’s managed services business was other than to say it was a large, and growing, team.

‘We’ve got other clients who do managed services with us but clearly a name such as BT is very important to us,’ he told Legal Business. ‘We’re proud to be selected as one of their strategic legal partners.’

Chalmers said that many GCs would also not have the investment budget required to invest in technology as some law firms and other offerings could. DWF explicitly identified investing in operations and infrastructure as a core objective of its £95m March stock exchange listing.

‘Our ambitions are very clear,’ Qualter said. ‘We are fully committed to developing this [managed services], it’s an incredible opportunity.’

hamish.mcnicol@legalease.co.uk

Legal Business

Revolving doors: Freshfields hire to leave DWF managed services role after less than a year

Revolving doors: Freshfields hire to leave DWF managed services role after less than a year

DWF’s New Law credentials have been dealt a blow as its managed services chief executive is set to leave the firm less than a year after his arrival in the first major exit since the firm completed its IPO in March.

Anup Kollanethu was initially hired from Freshfields Bruckhaus Deringer, where he led the Magic Circle firm’s Manchester office for over three years and established himself as a well-regarded chief of business operations.

But Kollanethu is now set to be replaced by Mark St John Qualter, who will assume the role of chief executive of DWF’s managed services division after joining from RBS. At RBS St John Qualter headed the artificial intelligence arm of the bank’s commercial and private banking business. Kollanethu will remain at DWF throughout the transition period.

Kollanethu arrived at DWF with a strong reputation, having overseen Freshfields’ combined legal and business services centre in Manchester. The hub opened as part of the firm’s 2015 shake-up which saw the mass relocation of support roles to the north of the country.

In March DWF completed its much-anticipated listing with a £95m IPO, becoming the UK’s largest listed law firm. Subsequently the firm made its first post-IPO splash with a £3m Warsaw office acquisition in May, bringing K&L Gates’ 11-partner team into the fold. The managed services division at DWF remains one of the fastest-growing areas of the firm’s business.

In a statement, DWF said: ‘Anup Kollanethu, the current CEO of managed services, has been instrumental in establishing DWF’s managed services offering. Anup has decided to leave DWF and we wish him every success with his future.’

thomas.alan@legalbusiness.co.uk

Legal Business

Australia pull continues as Dentons, DWF and LOD announce expansion

Australia pull continues as Dentons, DWF and LOD announce expansion

Described in some quarters as an overlawyered market for a country with a population of 25 million, Australia continues to attract investment from the international legal industry in all its shapes and forms. Global giant Dentons, recently-listed DWF and New Law outfit Lawyers On Demand (LOD) have all expanded their presence in the country.

Just over two years after entering Australia through a merger with national firm Gadens, Dentons has hit the 280-lawyer mark in the country after absorbing Adelaide-based Fisher Jeffries. ‘This completes our footprint across the major cities in Australia,’ regional chair and chief executive Doug Stipanicev told Legal Business.

Legal Business

DWF makes first post-IPO splash with £3m Warsaw office acquisition

DWF makes first post-IPO splash with £3m Warsaw office acquisition

DWF is expanding into Poland with the £3m acquisition of K&L Gates’ 11-partner Warsaw office, its first investment since going public in March.

The move, expected to complete later this month, will see 45 lawyers and 31 support staff join DWF alongside the 11 partners in the firm’s first Poland office and seventh in continental Europe. K&L Gates Warsaw managing partner Michal Pawlowski will lead the office, which is expected to generate about £7m in revenue for the year to 30 April 2020.

It is DWF’s first acquisition post-IPO, when the firm rose £95m for a market cap of £366m, below the lower end of expectations. Of the capital raise, £19m was for repaying a portion of members’ capital contributions to DWF, up to £10m for investing in IT and the development of its managed services platform, with the remainder for general corporate purposes, working capital and to fund any future potential acquisitions.

DWF chief executive Andrew Leaitherland commented: ‘This move will strengthen DWF’s capabilities in our global sectors of financial services and real estate, among others, and provides further opportunities in technology and energy where our businesses have strong alignment.’

He added: ‘Poland has a strong and dynamic economy and is an important gateway to central, eastern and south-eastern Europe as a whole. Having a presence there delivers on our international strategy to be where our clients need us to be.’

A K&L Gates spokesperson said: ‘After a careful and thorough assessment of our clients’ needs against the backdrop of economic and related trends, current and future opportunities and factors in the market, and the great strength of the firm’s other offerings in Europe in particular and elsewhere, K&L Gates previously determined that it was in the best interest of the firm to separate from the practice based in Warsaw. The Warsaw-based lawyers are now in the process of joining with another firm and we are working with them on an amicable termination of our remaining relationship.’

DWF’s other European offices include Brussels, Paris, Milan, as well as three in Germany. The Warsaw office will take the firm’s overall headcount to more than 3,200 across 28 offices in four continents.

The firm put considerable investment into the IPO and is expected to make a number of post-listing acquisitions. In December, the firm hired former Lucozade Ribena Suntory GC Mollie Stoker as company secretary, following 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.

Hamish.mcnicol@legalbusiness.co.uk

Legal Business

DWF becomes UK’s largest listed law firm as it completes £95m IPO

DWF becomes UK’s largest listed law firm as it completes £95m IPO

After announcing its record £95m IPO on Monday (11 March), DWF has today (15 March) issued 300,000,000 shares and been admitted to the main board of the London Stock Exchange.

With a £366m valuation and offer size of £95m, DWF has officially become the UK’s largest listed law firm. £19m of the proceeds will be used to repay a portion of members’ capital contribution to DWF, with £10m earmarked for IT investment and the remainder reserved for general corporate purposes.

Allen & Overy (A&O) advised DWF on the float, with a team led by London corporate partner Gillian Holgate. A total of 17 A&O offices were involved in the mandate. Holgate commented: ‘This transformational transaction will enable DWF to capitalise on the positive trends in the markets in which it operates and to continue to expand its international and differentiated offerings.’

While it is a record figure, the £366m market capitalisation is below the expected range of £400m and £600m. The £95m capital raise however, trumps the £75m sum that was mooted by DWF in February.

As a result of the IPO, DWF’s equity partners face an upfront equity reduction of 60% – profit per equity partner was £327,000 last year – while non-equity partners can expect to see a profit share reduction of 10%.

Partners will also 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. Equity can be release for those considered ‘good leavers’, while ‘bad leavers’ run the risk of having equity clawed back.

The firm’s chief executive, Andrew Leaitherland, is in entitled to a basic annual salary of £530,000 following the IPO, with chief financial officer Christopher Stefani entitled to £320,000.

The previous record for the UK’s largest listed firm belonged to Ince Gordon Dadds, the milestone reached when Ince & Co and Gordon Dadds combined last year.

At press time, DWF shares were trading at 124p.

tom.baker@legalease.co.uk

Legal Business

DWF valued at £366m ahead of £95m IPO this week

DWF valued at £366m ahead of £95m IPO this week

DWF will be valued at about £366m when it lists on the main market of the London Stock Exchange this week, making it the largest law firm float to date.

The firm said today (11 March) the total offer size is £95m, at 122 pence a share, representing 26% of the company’s issued share capital. Of that, £19m will be used to repay a portion of members’ capital contribution to DWF, up to £10m will be used to invest in IT and the development of its managed services platform, with the remainder for general corporate purposes, working capital and to fund any future potential acquisitions.

DWF expects to be fully admitted to the stock exchange on Friday morning, and is the sixth UK law firm to list. The £95m capital raise is ahead of the £75m it said it intended to raise in February. A £366m market capitalisation is, however, slightly below the widely touted expected range of £400-£600m.

Legal Business’ analysis last year had suggested a valuation of closer to £250m-£300m, based on DWF’s relatively low profitability and an analysis of previous law firm floats. DWF’s equity partners face an upfront equity reduction of 60% – profit per equity partner was £327,000 last year – while the profit share reduction of non-equity partners’ is 10%. That equity partner reduction is further than previous floats.

DWF chief executive Andrew Leaitherland told Legal Business in February 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.’

Partners will also 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’.

Leaitherland said today: ‘DWF and its partner group see this as the start of the next phase of DWF’s evolution and we are very pleased by the support shown by our new investors. We see substantial, long-term opportunity, to build on our strong track record and further develop and grow our Complex, Managed and Connected Services capabilities, while attracting and retaining the best talent, investing in technology and carrying out targeted M&A.’

He added: ‘The IPO is only the start and I am confident in DWF’s strong fundamentals and continued growth prospects as a listed company.’

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.

DWF has put considerable investment into the IPO, working with US investment bank Stifel on the planned listing since October 2017. Investment bank Jefferies was joint global coordinator on the deal, which is the first UK IPO of 2019. Jefferies said the deal attracted strong interest from UK long-only investors and income funds, mid-cap specialists and selective interest from US-based investors.

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 with the 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

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.