A law firm became the first in the world to go public last month when Slater Gordon floated on the Australian stock exchange with a market capital of £45 million. On the first day of trading its shares surged 40 per cent.

Will the same happen in England and Wales? When the Legal Services Bill is implemented, law firms will be allowed to take on external investment that could lead to similar flotations.

The only firm in England said to be considering going public is the Newcastle-based Dickinson Dees. This newspaper has reported that it was considering a listing of its volume banking advisory business that handles remortgaging and repossession of properties on behalf of banks. Dickinson Dees was said to believe that this type of business was suited to the external raising of capital, including investment by pension funds or private equity or, indeed, a flotation.

Others that consider going public, and there will definitely be some, will have to convince their partners and potential investors of the need for external finance and that such investment can generate significant returns.

The prospect of a big City law firm floating is tantalising and there is speculation that some in the “Magic Circle” are in discussion with investment banks about the prospect. But it is worth noting that even now, such practices can finance growth – be it organic or via acquisition – from existing resources without resorting to external finance and the resulting pressures from outside shareholders and a potential dilution of partner returns. These firms already have a largely global footprint and will finance proposed expansion into growth areas such as India and China from their own resources or with bank finance.

For such key reasons, therefore, the first English firm to float is more likely to be from the high street– those firms that deal with wills, conveyancing and accident claims. Here, competition is at its most fierce and there are advantages to be gained from consolidating a highly fragmented market and a need to gain critical mass – and quickly – to survive and thrive in a postTesco law world. After the Bill becomes law – expected by 2010 – it is expected that brand names such as the RAC and the Cooperative Group will add legal services to the personal financial services that they offer now. There are obvious advantages for such practices in scaling up and securing investment for areas such as IT systems, marketing and branding as well as centralising certain administrative functions such as finances and marketing.

High street firms aside, the other likely candidate for a flotation could be a mid-tier law firm wanting to break into the top 20 nationally, by using a combination of its equity and the proceeds of a flotation to grow via acquisition. It would be a brave firm that jumps first but if others see that it has worked, they may be forced to follow suit. There are examples of this type of consolidation in the worlds of estate agents and accountants, such as Vantis plc, an accountancy firm that floated on the Alternative Investment Market and used the proceeds to establish a national network of offices.

Increasingly, firms have become more corporate in outlook, with many moving to limited liability partnerships and most larger firms adopting management boards and appointing finance directors. The reforms will allow nonlawyers, such as finance directors, to become part-owners of the business, but the most significant shake-up will be how firms remunerate and give incentives to their lawyers and partners to retain and recruit the best talent.

Investors will obviously want a return on their financial commitment and would not expect partners to take all the profits. So lawyers will have to adapt to lower guaranteed salaries and a greater reliance on performance-based packages, perhaps involving some level of equity incentive as they strive to satisfy the demands of expectant investors. The author is head of corporate finance at the Manchester office of national law firm Hill Dickinson

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