The finance directors of large law firms prefer to stick with more traditional forms of funding for their practices that do not involve accepting external investment, new research has indicated.
Bank lending was seen as the most appropriate form of funding for law firms by those surveyed by Thomson Reuters, with alternative finance options such as asset finance and invoice discounting also gaining approval.
The poll canvassed the views of 13 finance directors from top 50 firms and a further 13 from the next 50.
A handful of them considered private equity investment suitable, as well as other long-term debt, such as bonds. Just two said that a stock market listing was appropriate.
Samantha Steer, head of large law strategy at Thomson Reuters, said: “The performance of Gateley on the stock market will be very closely watched in the profession, especially by those firms below the magic circle level who may feel that they can use an IPO to accelerate growth.
“Gateley hope their IPO will help them transform the business, with acquisitions, geographic expansion and changes to the way that they motivate staff. Bringing in outside capital allows them to achieve that without requiring partners to put up levels of capital contributions that they are not comfortable with.”
Ms Steer said that big firms were starting to follow the lead of smaller practices in looking into alternative financing options, such as using their invoices as collateral for borrowing.
“What’s clear is that top firms are keen to avoid ceding control to external shareholders, perhaps wary of shareholders who expect to see short-term returns on their investment.
“Law firms have yet to be convinced that they can retain the same levels of client service and partner retention under such a radical new arrangement that turns the traditional law firm ownership structure on its head.
“Until there are some more pioneers to demonstrate the potential for success, law firms are likely to remain hesitant, remembering high-profile failures in recent years of other listed accountancy firms.”
The research also showed that most of the firms polled were planning to invest in matter management analytics, e-billing, financial management information systems and document automation systems – while interest in outsourcing or shared services to boost profitability continues to grow.