Investors reacted warmly to the world's first flotation of a law firm today as Slater & Gordon surged 40 per cent on its first day of trading on the Australian Stock Exchange.

The move by the firm of personal injury litigators will have been watched closely by comparable firms in the UK, where new rules allowing law firms to accept outside investment are set to come into force at the start of next year. Australia has allowed non-lawyers to become shareholders in law firms since 2001.

Shares in Slater & Gordon closed at A$1.40, valuing it at A$133 million (£55 million).

Slater & Gordon had been seeking to raise A$35 million to fund an ambitious expansion drive. The Melbourne-based firm, which was built on workers' compensation cases, has already swallowed five other personal injury practices in the past two years and now has 21 branches in five states across Australia. It forecast revenues of A$58 million for 2007.

Observers in the UK suggest that the top City firms, including the "magic circle", are unlikely to need to seek outside capital, at least in the short term. However, they expect the prospect of an IPO or private equity investment to prove attractive to those in the second tier, particularly firms specialising in highly commoditised, consumer-facing practice areas.

Last week, The Times revealed that Dickinson Dees, the Newcastle firm, was poised to spin off its volume banking advisory business in readiness for the changes set to be introduced by the Legal Services Bill.

Dickinson Dees handles remortgaging and repossessions for banks on a national basis. That business, which had revenues over the past year of £6.5 million, is to be demerged as a limited liability company. The core business turned over £52 million.

Deloitte, the accountancy firm, predicts a number of flotations of middle-sized UK law firms after the Legal Services Bill comes into force. It believes that public listing may lead to a sea change in lawyers’ remuneration, which will mean they are paid more like investment bankers, with lower salaries and more performance-related bonuses and shares.

Jeremy Black, a director in Deloitte’s professional practices group, said: “Flotations or raising money from private equity cuts both ways. Funds go out of the business so the attraction for working to become an equity partner is not as large, but junior lawyers are paid so well they may not feel they need to reach that level. Giving them bonuses or shares may be a way of recruiting and retaining juniors.”

Floating also affords big law firms quick access to outside capital, which could be used to buy out underperforming partners, leaving more profits in the hands of remaining partners and new investors.

Few other professions have invited outside investors but two weeks ago Foster and Partners, the architects, sold a minority stake to 3i, the private equity firm. Investors in listed accountancy firms Vantis and Tenon have enjoyed bumpy rides since they floated.

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