My darling Clementi

Until recently, if you asked a managing partner about the ‘Clementi reforms’, you would be met with a blank expression. Now, finally, the metaphorical cash tills are starting to ring as partners wake up to the possibility that they may soon have the opportunity to sell their firms.

A managing partner reports that he turned up at a recent seminar on the Draft Legal Services Bill to be confronted with a dozen or so colleagues from other firms who had been sent on a similar fact-finding mission. Much of the Bill is taken up with regulatory reform. It is the bit about ‘alternative business structures’ that is causing all the belated interest. Legal Week has been exploring the possibilities thrown up by a legal ‘big bang’ pretty much since the magazine’s launch in 1999, when leading South African law firm Edward Nathan Friedland was bought by Nedcor Investment Bank. Closer to home, in 2001, business services consolidator Tenon Group caused a flurry of excitement by buying West End music specialist Statham Gill Davies for £7m, prompting the follow-up Legal Week analysis 'Who wants to be a millionaire?' (see story).

There was a further taste of things to come this week with the news of the planned float of three small to mid-sized Australian firms (see story ). While Slaughter and May is unlikely to put a 'For Sale' sign outside One Bunhill Row anytime soon, it would be equally surprising if the new regime was a complete damp squib. The most likely focus of activity will be the high street. Irwin Mitchell has shown that the consumer end of the legal market can be extremely profitable, given appropriate levels of investment and partner/assistant leverage. So it would not be a surprise if a bank, a supermarket, or a consolidator like Tenon moved in to snap up a patchwork of high street firms in order to establish a regional or national legal network.

But what of the top end of the market? Travers Smith corporate head Chris Hale reports that private equity managers are already starting to express an interest in the potential for investing in law firms. “The private equity houses have a lot of money to invest and it would be remiss of them not to explore new opportunities,” he observes.

For a start, he suggests they might be attracted by the fact that the leading law firms do not carry any debt, presenting valuable refinancing opportunities at the outset of an investment. He adds: “Even now, law firms are only semi-professionally managed and private equity houses might justifiably argue that they could bring a new discipline to these firms that would make them even more profitable than they are already. Whether that does prove to be the case, of course, remains to be seen.”