DWF unveils plan for blockbuster stock market listing

Leaitherland: Important step for DWF

Top-25 law firm DWF unveiled its long-anticipated plan to float today, and will be the first law firm to list on the main London Stock Exchange.

The blockbuster listing – likely to value the firm at around £600m – would make at least 25% of the firm’s shares available to investors. Though no figures have been released yet, DWF is thought to be looking to raise £50-100m.

The selling partner shareholders would hold a majority of the shares after admission.

DWF has 27 offices in 14 jurisdictions and employs 3,100 people focusing on insurance, financial services and real estate. It has a connected services division made up of 12 businesses offering other services around the legal advice.

In a ‘potential intention to float’ notice published today, the firm said it saw “a large consolidation opportunity… in a highly fragmented global market for legal and connected services”.

It said the acquisition growth strategy would focus on international expansion and accelerated development of the connected services division.

On the latter, it said: “Acquisition priorities are to: (i) acquire new product, software and technology capabilities, (ii) improve the geographical coverage of existing service lines, (iii) gain additional complementary services and solutions for DWF’s practice areas and specialisms and (iv) build out DWF’s current consulting capabilities within the connected services market to take advantage of the sizeable market opportunity.”

The notice said: “DWF has identified an attractive pipeline of potential acquisition opportunities which are in various stages of discussion and which it would seek to progress in the event of admission.”

The selling shareholders would be subject to a phased lock-in until the announcement of the group’s financial results for the financial year ending 30 April 2024.

Approximately 10% of the shares would be allocated to the trustee of DWF’s discretionary trusts. “This is expected to materially pre-fund the group’s future equity needs in relation to partner recruitment and promotion from existing rather than new, dilutive share issues.”

Partners will move onto fixed profit shares, supplemented by dividend income, “and, in some cases where performance warrants additional remuneration, participation in the annual bonus pool and share incentive plans”.

The fixed profit shares would be calculated by reference to a percentage reduction to the individual equity or fixed share partner’s profit share – 60% and 10% respectively.

The notice explained how a “rigorous review of partners across the firm” since 2015 has seen 136 partners join the firm, while 124 partners and partner equivalents “have exited the business over the same period (including partners who have been realigned to director or consultancy roles)”.

The firm said admission would aid recruitment and develop DWF’s international brand.

“The directors believe that the ability to use equity-based incentive structures is unique in most of its international jurisdictions and, in the event of admission, would provide a differentiating competitive advantage compared to many of DWF’s peers.”

DWF also published its results for the six months ended 31 October 2018, during which net revenue increased by 18% to £133m, most which was organic growth.

Revenue per partner went up 9.7% to £423,000, with internal gross profit jumping 26% to £66m.

Its cost income ratio was 43.6%, down from 44.8% a year earlier. Its medium-term target is 40%

Pro forma financials produced to illustrate the impact of the intended reorganisation on admission – reflecting the impact of the new partner compensation model and a corporation tax expense – showed gross profit of £68.6m, a gross margin of 51.5%.

DWF said it had a “compelling financial profile”, delivering significant net revenue growth over its last 12 financial years with an 18.6% compound annual growth rate – from revenue of £32m in 2005/6, it hit £236m in 2017/18.

“DWF’s legal business model, which is unique in the opinion of the directors, with international reach and scale means it is well placed to capitalise on the growing global legal services market…

“This growth is expected to be driven by general macroeconomic factors, international expansion of corporates, continuing regulatory change and increased outsourcing of in-house legal services to third-party providers such as DWF.”

Investors were told that DWF has “a strong UK national footprint and broad offering” that allows it to leverage its regional offices to service clients using a lower cost base, along with an international network able to serve a number of its multinational clients in their home jurisdictions.

It currently works with 23 of the FTSE 100 and DWF’s top 200 clients by revenue represent 61% of its revenue; moreover, 62% of DWF’s clients have been with it for a decade or more.

CEO Andrew Leaitherland said: “This announcement is an important step for DWF and our future growth story, highlighting just how far we have come over the past decade. We have developed into a global legal business, providing an innovative and differentiated offering to meet the full spectrum of our clients’ legal needs.”

Looking at the overall market, the notice said: “The directors believe that increased demand for legal services is – in addition to general macroeconomic factors – driven by regulatory and economic uncertainty driving the need for legal and other guidance and advice potentially culminating in litigation.

“The directors believe DWF is well positioned to benefit from the growing demand for legal services as management estimates its fees billed on litigation and litigation related matters represented over 65% of the group’s revenue in the financial year ended 30 April 2018.

“Relevant recent regulatory themes driving increased demand for legal services include GDPR compliance, pay-equality, and the legal challenges related to Brexit.

“In addition to the legal services market, DWF has a further significant growth opportunity in the much broader non-legal, managed and connected services markets.”

It argued that smaller independent law firms would find it “increasingly difficult” to compete with DWF and its peers “due to the fact that they will find it more difficult to make the required technology investments, build scale or develop their businesses internationally in line with changing market demand”.

Further, DWF’s national network gave it a “key competitive advantage” over London-based competitors, “as it gives DWF access to a lower cost base and also over DWF’s regional competitors where DWF has greater scale and broader expertise”.

DWF’s clients include blue chip corporate names such as the Royal Bank of Scotland, Aviva, RSA Insurance Group, QBE, Santander, Tokio Marine Kiln Group, Telefonica, and Wm Morrison Supermarkets.

DWF’s board is made up of chairman Sir Nigel Knowles, Mr Leaitherland and chief financial officer Chris Stefani, along with partner director Matthew Doughty – head of the London corporate team – and five recently appointed independent directors.

They are senior independent director Chris Sullivan, former chief executive of the corporate and investment bank at Santander UK; Teresa Colaianni, former group human resources director at Merlin Entertainments and a qualified Italian lawyer; Vinodka Murria OBE, the founder of Advanced Computer Software Group and more recently an operating partner at HG Capital; Luke Savage, former group CFO at Standard Life and Lloyd’s of London; and Samantha Tymms, a managing director at Promontory Financial Group.

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