Longden: Rejected approaches from private equity
The managing director of a Kent law firm with roots going back to 1781 has described its move to employee ownership as “a way of saying we are not for sale”.
Christopher Longden said he had rejected more than eight approaches over the last 18 months from private equity firms interested in buying Whitehead Monckton because it “did not fit in with our ethos and culture”.
He said 92% of the shares in the law firm had been transferred to an employee ownership trust (EOT), in the latest in a growing trend.
Whitehead Monckton has over 120 staff at five offices in Kent and London. Mr Longden said the process of transition had taken around a year, beginning with a review by a local firm of business advisers.
This concluded that there were a number of advantages in becoming an EOT: “Since there are still not many in the marketplace, it would be a way of differentiating ourselves. There is also evidence that employee-owned firms are more profitable and efficient, and staff are happier and more productive.
“All staff with more than 12 months’ continuous service have a meaningful stake in the business. It’s a great way to attract and retain staff.”
Mr Longden said both the employee council created as part of the transition to an EOT and the trustee board, which he compared to a board of governors at a school, were a way of ensuring good governance of the firm.
“There are certain things we can’t do. We can’t sell or merge the business. Culturally this fits very well with us. We are part of the fabric of Kent and it’s always drilled into us that we are the custodians of the firm. It’s a way of declaring that we are an independent business – we are not for sale.”
Mr Longden said he had “nothing against private equity at all”, but “they need a return over three to five years”, and they needed to sell, usually to another private equity firm, for more than they paid.
He said the directors of Whitehead Monckton, which became a limited company in 2014 and is now an alternative business structure, had already received “some initial consideration” for their shares and would be paid back over a period of six and a half years.
It was “undoubtedly” the firm’s intention to make use of the ability of employee-owned firms to pay staff a tax-free bonus of up to £3,600 a year, but a decision would not be taken until next year about that and the firm’s existing bonus scheme, which is taxable.
Mr Longden said his suspicion was that, rather than becoming EOTs, the private equity route would have “more appeal” for many profitable practices in Kent.
“There’s a lot more in it for the sellers, and some of the numbers being offered are quite large.”
However, he admitted to being “a bit cynical” about the long-term future of private equity in the legal services market.
“Legal practices are very much fixed costs businesses. There are limitations to what you can achieve in growing your margins and making costs savings.”