Specialist law firms are being priced like businesses rather than partnerships, which should worry partners as much as it excites them.
Private equity has spent a decade buying football clubs but the investors are now also targeting law firms, having taken an interest in a sports law boutique that counts both Manchester United and Manchester City among its clients.
Palatine, a Manchester buyout house, agreed to invest in Centrefield, a Manchester sports law boutique. The terms of the deal are undisclosed and it still needs regulatory approval. Centrefield says the money will take it into the United States and Europe, partly through acquisitions.
It is Palatine’s first move into legal services.
Private equity also has Chelsea, RedBird has AC Milan, and US funds own pieces of half the Premier League. It therefore seems logical that the next step was always to buy the people who do the legal work.
Centrefield is no outlier. In March, London rival Northridge, the firm behind the sales of Chelsea and Everton, sold a minority stake to Cordillera, a San Francisco investor that specialises in what it calls niche assets.
In August, the offshore heavyweight Mourant sold 27 per cent of its group to MML. That is two of Britain’s best-known sports boutiques have taken outside money within seven months.
Why sports lawyers?
The appeal of law firms is obvious once you look at the numbers. Centrefield worked on deals involving 18 Premier League clubs in a single transfer window, with fees approaching £1.8 billion. Its fee income rose by a fifth last year.
A successful law firm that has developed rapidly over the past decade, Centrefield co-founder Edward Canty (pictured) is excited by the PE investment in his growing firm.
““After a very successful 10 years in business, the partners decided that if we wanted to maximise Centrefield’s potential to be the leading global specialist sports law firm we would need an experienced and collaborative strategic investment partner to support us on the next stage of our journey,” he said in the firm’s media statement announcing the Palatine deal.
Elite sport continues on a major growth trajectory and is now a cross-border asset class, full of multi-club ownership structures, financial-sustainability rules, image rights and an independent football regulator.all of which generate significant legal work. In other words, an attractive investment class for the PE funds.
Sports boutiques with a dominant position in a closed market look less like law firms to an investor and more like toll booths.
The bigger point
The real story isn’t sport so much as the changing nature of how law firms are structured.
A traditional firm grows only as fast as its partners are willing to fund it from their own pockets. Partners are rarely keen to forgo this year’s profit share for a New York office that pays off long after they’ve retired. Outside capital removes that constraint.
England has allowed non-lawyer ownership since the Legal Services Act, and it has become the world’s laboratory for the experiment as we have reported on several occasions on LawFuel.
America, where most states still forbid outsiders owning law firms, is watching closely as it edges slowly towards widespread law firm ownership changes.
The PE Conditions
The main issue with private equity funds is that they seek growth, a return and, eventually, an exit, typically within five to seven years.
Lawyers owe duties to clients and the courts that do not bend to a fund’s timetable.
There is also history. Plexus, one of the early PE-backed law firms, ended with its backer writing its investment down to zero. Investors buy a firm’s client relationships and its star partners, and those are the two assets most likely to leave.
Done well, outside money could produce specialist firms with genuine global reach, funded for technology the partnership model has never been able to afford. Done badly, it will produce firms run for their next buyer rather than the current client.
Either way, the question for ambitious boutiques has changed. It used to be whether to take outside money. Now it is who to take it from, and on what terms.
