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Firm’s stock rises

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Cite as: (2007) 81(7) LIJ, p. 21


Plaintiff firm Slater & Gordon made legal history in May by becoming the first law firm to list on the Australian Stock Exchange.

The stellar stock market debut of Slater & Gordon showed just how keen the investing public is to own a stake in a law firm.

Yet not all lawyers are convinced that sharing their profits and moving away from a private and consensus-driven ownership structure to one where their wealth is open to public scrutiny is the way to go.

The Slater & Gordon float – believed to be a world first – also triggered a debate about how the potential conflict of interest between the personal injury litigation firm’s primary duty to the court, followed by its clients and then shareholders may be resolved.

Slater & Gordon managing director Andrew Grech said managing conflicts was routine in law firms, no matter what their ownership structure, and no different from other organisations such as investment banks or Telstra, which has a social clause built into its corporate charter.

The firm’s priorities were clearly spelt out in its prospectus.

Slater & Gordon raised a total of $35 million in its initial public offer, which saw 32.5 per cent of the company sold to the public. Of the money raised, $15.4 million was ear-marked for acquisitions, marketing and advertising.

Its first day on the stock market on 21 May saw Slater & Gordon shares close at $1.40, a hefty premium on its $1 issue price.

At the time of writing, Slater & Gordon shares had risen to peak above $1.70, delivering the firm’s principals paper gains worth more than $36 million.

This is in addition to the $17.3 million that seven of the biggest shareholders, lawyers Andrew Grech, Peter Gordon, Paul Henderson, Cath Evans, Hayden Stephens, Ken Fowlie and Marcus Clayton, were paid from the proceeds of the $35 million float.

They are unable to sell their remaining shares until late next year.

Since listing, Brisbane solicitor Vince Green has agreed to sell his military compensation firm D’Arcys Solicitors to Slater & Gordon for $2.8 million in cash and shares. It is Slater & Gordon’s sixth acquisition in two years and will take effect from 1 July, when new laws allowing firms to be owned by non-lawyers are introduced in Queensland.

Perth-based Integrated Legal Holdings (ILH) also expects to list on the Stock Exchange this month, after a revised prospectus to raise $12 million was accepted by the Australian Securities & Investments Commission.

The ILH float will bring together Brett Davies Lawyers and Talbot Olivier as well as online legal document group LawCentral.

A third firm, Durack & Zilko, pulled out of the planned float after the WA Legal Practice Board (LPB) indicated it had serious concerns with some of the valuations and sale agreements outlined in the prospectus. The LPB said in May it had referred its concerns to the Legal Practitioners Complaints Committee.

ILH spokesperson Brett Davies said last month that investors had swamped ILH’s initial public offer and he expected it would close early, allowing for a July listing date.

He said a listed corporate structure allowed for greater flexibility over the traditional partnership model, including the ability to offer incentives like employee share schemes.

“Young lawyers don’t want lifetime partnerships. Our business model offers these up-and-coming lawyers equity without having to take on partnership,” he said.

Yet, while many firms have incorporated as it makes it easier to retain earnings, not all believe a stock market listing is ideal.

Critics argue floating delivers windfall gains to principals but offers little for the next generation of partners in a firm.

More than half the money – $6.7 million – raised in the ILH float will go to the vendors of the legal practices and LawCentral.

Class action firm Maurice Blackburn Cashman last year ruled out a public offer as a way of financing its rapid growth.

MBC chief executive Greg Tucker, a former stockbroker, believes law firms that act for victims should have a corporate structure that delivers “a genuine social dividend”.

He also believes the firm’s current incorporated structure, which is effectively a partnership, is a better way of motivating partners.

Law Institute of Victoria president Geoff Provis said it would be interesting to see how listed law firms dealt with issues surrounding profits and succession.

“As a regulator we are comforted by the fact that in its prospectus Slaters made it very clear their primary duty was to the court and their secondary duty was to their clients – ahead of shareholders. This is the same obligation for all lawyers and all business models,” Mr Provis said.

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