LAWFUEL – The Legal Issues Newswire – In May, Australia’s Slater & Gordon became the first law firm to complete an initial public offering. It did so with a bang — the personal injury firm listed on the Australian Securities Exchange at Aus.$1 per share, and over the first three days of trading, the stock surged 68 percent. Today Slater & Gordon is trading at more than 70 percent over its offer price.
Will any American firms follow suit? Probably not. The U.S. legal industry is regulated by a mishmash of 50 state laws. There’s little chance they’ll be federalized anytime soon.
Still, it’s fun to think about. We spoke to investment bankers, law firm consultants and academics to figure out how the stock market might treat a U.S. law firm. All agreed that there isn’t much to be learned from the Slater & Gordon experience. The Victoria-based firm focuses on personal injury and class action work, and its revenues are a fraction of those at large U.S. firms. Plus, the Australian and U.S. capital markets can ascribe different values to industries.
There are a variety of U.S. companies, however, with business models and growth statistics similar to (though far from identical with) law firms. Among them are consulting companies BearingPoint Inc., executive search firm Korn/Ferry International and boutique investment bank Greenhill & Co. Inc.
Once the range of similar public companies was established — “comparables,” in banker-speak — we had to figure the right multiple, or how many times earnings-per-share the market might be willing to pay. The public companies listed above trade at anywhere from 17.5 to 27 times 2007 earnings. The median is about 20.
Assuming that law firms, like all IPO candidates, will initially be priced at a slight discount to the comparables, we came up with multiples for eight firms that seemed to represent four different classes of business. Cravath, Swaine & Moore and Wachtell, Lipton, Rosen & Katz are superboutiques: They do high-premium work for many of the largest U.S. companies and have profits per partner in excess of $3 million. We assumed that they would trade at between 18 and 20 times their 2007 earnings.