Friday, 12 March 2010

Playing with the Big Boys

Like many commentators (including James Dunning and Robert Sawhney), I was interested in a "Times" report which said that "up to 20 law firms might be floating".

I find this idea very interesting and have said before that I'm not sure I can see the benefit for potential investors.  Yes, law firms are profitable, but the profits are, in general, removed each year. I'd be surprised if venture capital would be interested since they are usually looking for a large and quick return - not something I can see happening with a mature, top 20, law firm.

So - would I invest in a top 20 firm? Would I actually buy shares? Well - I'm not sure. I like to have lots of information before I invest - lots of data about profitability (I really don't care about revenue), lots of information about past performance, lots of information about growth potential. If something innovative is not going to happen then there is no particular reason for the shares to rise all that much. I'd be nervous of using "law stocks" for long term investment since I know that the partners want to take their profit out - and I'm unsure about short term return unless there is clear differentiation.

It's also worth thinking about the impact of external investors on the firm. As owners of the firm, investors - particularly institutional investors - will expect an ongoing, continuous relationship with the firm. They will expect lots of news and will want get results very quickly. They will not care (like me) about revenue and will be very concerned at the focus on PEP, unless the firm can prove the link between increased PEP and increased investor return. I think it might be a bit of a shock for most firms - if nothing else they may need to hire some professional investor-relations people.

Many firms have not done too well in putting up with "interference" in the running of "their" firm from their own support staff - how will they cope with non-lawyers joining in? My goodness - given the relative strength of the Euro, the investors might not be British!

This is my 100th post and I think it's appropriate that investment forms the subject!

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