ABS countdown | The Australians are coming

Australia's cricket team may be returning home having lost the Ashes three-nil but its big law firms appear to be reversing that result. But what can UK lawyers learn from the Australian approach and external investment more generally?

Only last month, Slater & Gordon Lawyers (S&G) confirmed that it was acquiring Fentons Solicitors for £32.5m as the latest step in its expanding English presence.

In May, the newly listed Australian firm Shine Lawyers announced that it was interested in a number of law firms in the UK. This was followed in August by Integrated Legal Holdings, the first corporate law firm in the world to go public, giving indications that Britain would be the target for its own expansion plans. Both have no doubt been keeping a close eye upon rivals S&G, which have been making the pace.

In June it reported to the Australian Securities Exchange that its UK business had delivered £40.6m in revenue. S&G's first move came with the acquisition of Russell, Jones & Walker in early 2012, which quickly became an ABS. It is also hoping to complete its acquisition of Goodmans Law, in Liverpool, very shortly along with the purchase of Simpson Millar and the PI activities of Taylor Vinters, probably in early 2014. The total investment on the UK for all five firms is in the region of £110m.

If there is one clear lesson which can be drawn from this it is that listing does indeed lead to access to greater funds to expand a business! One other conclusion is that, despite the ban on payment of referral fees, it is the UK personal injury market which external investors find attractive as an investment proposition.

All of the firms mentioned above have significant involvement in personal injuries work, as do those acquired by the AIM-listed company Quindell Portfolio. It seems that the fragmented nature of the personal injury market is seen by all of the potential investors as offering a large opportunity for new entrants.

The perception is that, over a period of years, the Claims Management Companies, in the words of Shine Lawyers' managing director Simon Morrison have "created a culture of dependency among British firms for incoming work". This necessitates those practices having a complete re-think in the post-referral fee ban world, particularly in terms of communication with clients.

Concentration on what has happened since ABS became possible tends to ignore what has not happened. In particular, the number of firms who have been boosted by big external investment has not been what many supposed. Investors expect a return for their risk-taking and confidence in how it will be achieved. '¨They want clarity in what difference their money will make and what the exit strategy will be when they make their investment. Contrast this with the reality of a traditional law firm partnership. A typical practitioner manager-owner makes an investment on becoming a partner and expects to take a similar sum out again years later.

In the meantime drawings out of the firm are maximised and the wealth created is not significantly re-invested in the business. The consequences of this are in planning, investment in infrastructure and a business which may be performing very well, but is unattractive to external investors. Hence the concentration on PI work, which is visible as a commodity.

A large number of law firms have belatedly realised that the base of many of their problems is structural. In September 2012 the number of incorporated law practices in England and Wales overtook the number of partnerships for the first time, 29 per cent of all practices are now incorporated, as opposed 26 per cent being partnerships.
Many of these firms are also looking to concentrate on those areas of law where they make a profit and also to have a continuous involvement with their clients, as opposed to the inefficient "single transaction" model which defines many firms. They will also tend to be conscious of the need to be accessible to their clients, in physical reality and cyberspace. Firms such as these may find themselves well-placed to remain independent or to take advantage of external investment.

The Australian invasion '¨may be seen by history either as a temporary blip, or the first phase of external control of a large per-centage of the legal market.