Ever since London-headquartered Mishcon de Reya announced the world’s largest law firm IPO in September last year, the discussion about the merits of IPOs in the legal industry has once again resurfaced, even in Asia where most jurisdictions currently prohibit non-lawyers from owning law firms.

In 2021, a poll conducted by third-party litigation funder Harbour found that around a third of partners at firms with 50 plus lawyers were considering going public in the next 18 months. Ellora MacPherson, chief investment officer at Harbour, says that in Asia, as the legal market grows more competitive “we would expect firms to want an injection of external capital to grow or to manage succession, so the underlying drivers are there.”

While law firms wait for regulators and other bodies to map out the path to public listings, it would be good, however, to take a look at what kind of firms are well-placed for an IPO, as and when they are allowed to list.

Joel Barolsky, managing director at Australian law firm consultancy Barolsky Advisors, feels that successful list firms are generally are ones that want to develop a specific part of their business.

“Spruson & Ferguson, the Australian patent and trademark firm, were one of the first firms listed in Australia. They saw the role of acquiring the capital [as a means] to invest in their technology, their platform for administering, registering and renewing patents and trade-marks. A lot of the money was going into systems development and providing a platform they could scale, then enter new markets with — particularly in Asia,” he says.

“They were one of the forerunners into the Singapore market, and became one of the largest patent firms in Singapore. Then they’ve opened other offices in the Asian region. They’ve continued to flourish. That’s a good example where the money has been put to good use,” Barolsky adds.

The big challenge that law firms face, Barolsky says, is deciding whether they are a “brand” firm, or reliant on individual lawyers.

“In the areas of law where clients are happy to trust the firm’s brand, there is clearly a benefit to investing in growing that brand and building the franchise. In this instance the external share-holders will be investing in a valuable and enduring asset,” he says.

“For example, a firm that is famous for helping individual workers with workplace injury claims — clients choose that firm because it has a trusted brand. The trust is in the enterprise or the brand of the firm, not so much the brand of an individual.”

“However, when it comes to areas of law where clients are buying key individuals more than the firm brand, like high-end M&A, it’s clear that the firm’s major assets can walk out the door at any time,” he says, adding that the case for listing these types of firms is “less persuasive.”

MacPherson says that in order for a firm to list successfully, it needs an attractive proposition for investors, such as “an attractive growth story is essential along with a clear strategy to achieve further growth. For firms that have steadily (but not rapidly) grown with limited differentiation from peers, it will be hard to attract investment.”

Another challenge, MacPherson notes, is getting early buy-in from partners.

“It is revealing that in many of the UK firms that have listed, the equity is relatively narrowly held. One could speculate that firms with a few key partners controlling the majority of the equity will find it much easier to push through an IPO than where the equity is split out across tens or hundreds of partners,” she says.

Additionally, for firms where equity is more broadly spread, it requires “a significant change in the mindset of partners at the firm.”

“Many partners have worked at the same firms their whole career, aspiring to become a partner and owner of the business. On reaching the summit, to decide to sell their ownership in their business may be an emotional wrench. Achieving consensus may be challenging,” she says.

And then, there are clients to consider.

Barolsky says it’s unclear how clients might view a firm being listed. A potential conflict, he foresees, is whereby a firm that listed may “not take on certain work or deal with certain clients, by virtue of the fact that it may not look good in the market.”

But another argument that could be made, he says, is “if a firm is listed, there’s a level of transparency around financial performance that’s required]. It had to disclose its profit share and financial performance, and in a way that might drive a more commercial, more pragmatic approach about how they go about their business.”

Clients may also be uncomfortable with seeing their law firm’s stock price fluctuate, MacPherson says ultimately if a listed firm continues to retain its best people and deliver for clients, this is unlikely to concerns clients — especially when many clients are listed them-selves.

“The greater transparency a listing necessitates could also be perceived positively,” she adds.