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Gateley: First on the list

Should other large firms follow Gateley's example and consider floating on the stock market, asks Stuart Bushell

2 June 2015

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After much speculation,
it has been announced that top 50 firm Gateley intends to be the first UK law firm to float on the Alternative Investment Market (AIM) of
the London Stock Exchange.
It's not necessarily the firm that was expected to be first, but
Gateley sees the listing as an opportunity it could not afford to miss.

It will be very interesting to see whether the move forms a blueprint for certain types of large firm, or whether listing proves to be the domain of an isolated few. The questions are, why Gateley, and why now?

In 2006, Gateley was formed
as the result of a merger between Birmingham-based Gateley Wareing and Edinburgh firm Henderson Boyd Jackson. Its current Edinburgh-based sister firm, HBJ Gateley, is not part of the listing, with Scottish firms lagging behind their English
and Welsh counterparts in terms of what regulators are prepared to permit.

Gateley has expanded its operations and now has 700
staff across nine offices, with 380 fee earners. Its core business is in corporate work, financial services, commercial, and employment. The 81 selling partners would
be locked-in for five years, thus giving potential investors comfort that those responsible for Gateley's success will not suddenly depart. It is expected that the float is likely to value
the firm at between £130m
and £140m.

ABS status

In 2013, Gateley was granted its alternative business structure (ABS) licence and is now a top 50 law firm. However, it seems that when getting its ABS licence, the firm had no great ambition to get a listing. At the time, it commented that the reason
for getting ABS status was to allow non-lawyers into senior management of the firm, not greater access to capital.

Senior partner Michael Ward was quoted as saying: 'We don't have any imminent need for outside investment but looking forward [to the] next five to ten years there may come a time when that seems appropriate.' Either that was a good bluff or things have moved on quickly.

Gateley has certainly done well in financial terms. In the year leading up to April 2014, revenue went up to £54.6m from £51.4m the previous year. The last ten years have seen a compound annual growth rate of 14.3 per cent in revenue and 14.8 per cent in annual profit.

In its statement to the stock exchange, the firm indicated that it intended to buy other suitable firms with compatible services or geographical locations. This would 'enable cross-selling to existing clients and represent a stronger sales proposition for potential new clients'. Gateley was also very keen to say that it wanted to gain 'first mover advantage', giving it a base from which it could expand and diversify its operations as a listed company.

Stock market flotation

It is known that a number of
the bigger law firms have looked at flotation since the Legal Services Act made it a possibility. Irwin Mitchell was one that did so, and the firm has still not ruled it out. However, getting a listing is only really an option for firms with a value of over £100m, and the preparation time for
the move is considered to
be a minimum of two years.
This effectively rules it out as an option for nearly all firms except those in the top 70 or so.

It may be that the inexorable rise of Slater and Gordon is a factor in determining the speed at which Gateley is moving.
At first sight, the two do not appear to have much in common, with Gateley operating in the corporate commercial sector and Slater and Gordon dominated by personal injuries work and styling itself as a 'consumer'
law firm.

Nevertheless, Slater and Gordon was the world's first listed firm, on the Australian Stock Exchange, and has not been slow to exploit the commercial advantage which that has given it in the UK market. Gateley may perceive a similar opportunity to expand at a rate that its competitors cannot match financially.

So, Gateley is big enough,
with the right types of work,
and with a good enough track record to attract external investment. Not many firms
tick all of those boxes and are
willing to take the risks involved in expansion. There are not going to be hundreds of firms doing the same thing, although those that make a success of it may become very successful very quickly. SJ

Stuart Bushell is managing director of SIFA

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