You ain’t seen nothing yet, says top banker, with flood of investment and mergers on way

Llewellyn-Lloyd: quality management is key

There will be an “enormous amount” of external investment and merger activity in the legal market over the next 24 months, a leading investment banker has predicted.

John Llewellyn-Lloyd, head of professional service of Espirito Santo Investment Bank, said the examples of external investment seen to date were the “first of very many” and more had only been held back by uncertainty in the volume market, such as personal injury, which affected valuations.

He told an event in London that as many as 8,000 law firms might disappear – through merger or otherwise – over the coming years.

Mr Llewellyn-Lloyd, whose clients include Irwin Mitchell, said the key to attracting investors is “quality management” – the PEP (profits per equity partner) model makes no sense to an investor, he added, as taking all the money out of the business means it has no value.

It was important too for firms to think about their “internal investors”, he said – “no external investor will come into a people business without a feeling of internal investment”.

Iain Kennedy, a partner at Duke Street Capital, said his private equity company had invested in the Parabis Group to lead the consolidation set to occur in the volume market. “People who don’t have scale and quality will be competed away,” he argued.

Saying that Direct Line was Parabis’s biggest client, he suggested that “big companies increasingly like to have other big companies as their suppliers”.

Mr Kennedy emphasised more than once that law is “just another business” and that the “cost of production is key”, along with “staying very close to your clients”. He explained: “What the customer wants is quality at the best possible price. You can have the best brand in the world but if you’re not providing that, then someone else will get the business.”

Companies outside the market will see the margins in legal services “and say ‘thank you very much’”, he added.

Jordan Mayo, managing director of Smedvig Capital – which is invested in the first ABS, Premier Property Lawyers – said his company had spoken to between 50 and 100 law firms in recent times, but as yet had not decided to invest in any. It was “tough” to get the right mix of an investment case, firm culture and management, he said.

At an earlier session at the Modern Law conference, David Beech, managing partner of Staffordshire firm Knights – which last year took investment from James Caan’s Hamilton Bradshaw – said investors are looking at mid-sized firms with turnovers of £10m-20m, a bracket Knights just fell into. Any bigger and there are too many partners to convince, he said.


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