Thrusting national operator DWF is gearing up to be the largest UK firm float yet with a London Stock Exchange listing later this year. The top 25 UK law firm initially went into standard non-denial mode today (15 June) over reports it is aiming to float later this year with a supposed price tag of £1bn.
The presence of City PR shop Finsbury, which was today distributing ‘background briefing points’, signalled that DWF was being positioned for an offering. Within an hour the firm anyway changed its public position to issue a statement (see below).
Such a valuation would raise eyebrows in the profession, given DWF’s 2016/17 revenue of £199.3m, with profit last year slightly down to £43.5m from £45.5m. Profit per equity partner (PEP) fell 6% to £300,000. Even valuing the business at a generous 15 times earnings would suggest a valuation of well under £700m. Standard valuation models for such a business would be in the £400m-£600m region.
The 1,200-lawyer practice had 70 equity partners last year, with a further 154 salaried partners. Turnover was up about 8%, though a float would also focus attention on the firm’s borrowings, which have increased in recent years to currently exceed £40m in bank debt, a relatively high level for a law firm. A note in the firm’s latest annual report says the firm held discussions with its banks about future borrowing requirements and while no formal bank facility documentation had been completed, the lenders intended to make these available.
DWF’s recent history has been marked by a spate of office openings in Europe, North America and Asia-Pacific, as well as the acquisitions of legal cost business NeoLaw last June and claims management firm Triton Global.
It also brought in the man who spearheaded DLA Piper’s meteoric rise from regional upstart to global giant, Sir Nigel Knowles, as chair in September last year. DWF is seen as a firm which has long modeled itself on Knowles’ former parish. Knowles was also known to have been intent on taking the legacy DLA public before the firm instead opted for the three-way US merger that created DLA Piper.
One former partner expressed surprise at the move and the touted £1bn market capitalisation, noting relatively low profitability for a top 50 UK law firm. ‘I am sitting here struggling to understand what the hell is going on,’ he added: ‘We looked at a flotation three years ago and decided against it, now they’ve obviously had a change of heart. If [chief executive Andrew] Leaitherland was playing poker, he’s just gone all in.’
Another former DWF veteran noted previous discussions around attracting private equity investment. He commented: ‘It’s very efficiently managed but debt is an issue. They have a consistent profitability track record but I’m not sure the international offices have been working as well yet.’ He noted that a float could be used to pay down debt, ‘wiping the slate clean’.
DWF’s IPO would be the sixth UK float, and the largest by some distance since Slater & Gordon’s troublesome listing on the Australian stock exchange more than a decade ago.
DWF’s statement: ‘To enable us to deliver on our strategy and for us to better serve our clients through an increasingly international and differentiated offering, we have plans to increase our investment in information technology and connected services. The current corporate structure of our business continues to work very well and has enabled us to deliver our key business objectives with record growth this year – but as a business which is committed to “doings things differently” it is also important to consider alternative structures which can set us apart from other legal businesses. To that end, we have been considering a number of strategic options for our business, including the possibility of an IPO on the London Stock Exchange. If we were to proceed with an IPO, we believe that it would enable us to achieve our strategic objectives more quickly, while also enhancing our ability to attract and retain the best talent and to incentivise our people by aligning them through offering ownership within the business. We are focused on an IPO. However, a number of options are available to us, and we can still continue to build on our success to date, with the support of our clients, under our current structure. For the time being, it is very much business as usual for us, our clients and our business partners as we continue to focus on delivering the excellent service which our clients have come to expect of us.’