Hamish McNicol reports on Eversheds Sutherland taking the partnership shackles off its Konexo offering
The alternative legal service provider (ALSP) market is estimated to be worth more than $10bn annually. Research led by Thomson Reuters, called Alternative Legal Service Providers 2019: Fast Growth, Expanding Use and Increasing Opportunity, found that the revenue generated from ALSPs had grown to that amount in 2017, up 13% from an estimated $8.4bn a couple of years earlier.
That market is nearly a third of the combined revenue for the UK’s top 100 firms, which rose 10% to £24.2bn last year. ‘Being able to grow and take the opportunity that’s in the market is something you need to do now,’ Eversheds Sutherland partner Graham Richardson told Legal Business. ‘We’re talking about rapid growth, but it’s going to need a fair bit of investment and outside expertise.’
Eversheds is hoping to deliver that through Konexo, the New Law business Richardson heads and which the firm has just spun off from its LLP in a bid to supercharge growth from £40m to £100m over the next five years. It is a move more than six months in the planning, and one that simultaneously, and most importantly, opens up the arm to external investment.
The separate corporate structure merges Eversheds’ advisory, interim resourcing and managed service offering to act as a global alternative legal service and compliance provider. Turnover for Konexo – which will become an alternative business structure and Financial Conduct Authority regulated – grew 38% and won the firm’s single-biggest mandate last year. It has about 300 staff, of which half are contractors, and will initially be owned by the firm’s partnership.
However, despite that strong performance last year the New Law offering’s turnover has only grown to £40m since its early forms first started operating in 2011. Richardson says the business is profitable but is eyeing much greater growth, ambitiously targeting £100m in revenue.
Konexo’s strategy is to move into Asia and the US – where Eversheds merged with Sutherland Asbill & Brennan in early 2017 – by the end of the year, as well as more quickly expand into that $10bn global ALSP market. There has been a marked increase in clients using alternative providers, Richardson says, led by the Big Four and existing players such as Axiom and UnitedLex.
‘There’s increased interest to buy from a broader range than just a traditional law firm. As we push more as a law firm into the higher work, we also want to be playing in the alternative area and this gives clarity to our clients. We’ve also set it up in a way that can take outside investment if required, or to even just reinvest its own profits, which is very hard for a law firm.’
Just as importantly, however, has been the increased investor interest in these offerings: Axiom announced its initial public offering (IPO)in February, UnitedLex secured $500m from CVC Capital Partners last year as Lawyers On Demand sold to private equity, while Elevate has been on an acquisition spree. Eversheds has already spoken to some corporate finance companies about investment opportunities with Konexo. The initial plan is to find a minority investor, with the Eversheds partnership owning most of Konexo, but an IPO further down the line is not ruled out.
‘Partners have bought into the fact that if we grow this to more than £100m, while we’ve given away a bit of that [to external investors], the investment has got us to £100m faster than we would have otherwise done,’ Richardson commented. ‘The net sum gain for them is more money than they would have got if we’d just grown slowly and gradually.’
Richardson argues that creating a separate brand for Konexo is just as important as creating a separate entity, which can invest more freely and have a different strategy to the overarching law firm. Eversheds co-chief executive Lee Ranson told Legal Business the firm has for the last two years had a specific investment fund of ‘many millions of pounds’ created from holding back some partner profits. But separating Konexo allows it to develop as a brand and structure and invest appropriately for the prospect it sees now.
‘You’ve got to respond to the demand that you’re seeing in the market and we feel we’ve got a good opportunity to pull those existing services together and accelerate that offering,’ Ranson said. ‘We have to be alive to the fact that the investment in technology that’s needed to deal with some of those things that are happening might not come from the normal law firm offering and we might have to do things differently.’
Eversheds has given Konexo an investment fund for initial recruitment, from which it could also potentially fund acquisitions and a new partner-level head of technology and transformation role has been created. Richardson commented: ‘We don’t have a £100m pot to do that. We’ve done well to be given the year-one investment that we have but if we need much more in the future we’re set up in a way to go and get that. We know there’s a good appetite out there. It’s an investible market.’