How much is your practice worth?
As the legal market expands - as all markets do when deregulation is applied - who will be benefiting from this growth?
Predictions are that the numbers of solicitors will decline - but, as the legal sector grows, why should this be? Fundamentally, we have too many solicitors’ practices serving a growing but changing market.
At a basic level we have 9,000 firms with five partners or less with the average age of equity owners fast approaching sixty years.
Most have no succession planning or exit strategies and work with ageing clients whom have not been communicated with for years - so it’s little surprise that new brands are looking to enter this space which offers such opportunity! For far too long many law firms have been providing the same below par services, charged for by the hour, at a standard that is unacceptable, although most will not accept this as reality.
These law firms have failed to move with the times. In numerous secret-shopper exercises we have seen damning reports of a failure to offer even the most basic client care, a failure to return phone calls and more fundamentally a complete lack of understanding of how important it is to convert potential business into new instructions.
Unfortunately the new brands entering the market will focus on exceptional client care and are experts at turning a sales lead into a new instruction.
Let’s just look at the Tesco marketing model - a club card that recognises what we purchase and comes up with alternatives at a competitive price; a money-back offer and a client care service that is second to none. As yet Tesco have declined to show any interest in legal services but if it did...
Already at the table is QualitySolicitors, who may not be everyone’s choice as a national brand, but they are at least focusing on these fundamental issues.
Using private equity investment wisely QS is working to recruit high-quality people and raising the standard of the member firms by focusing on the basic client expectations. Work generation and converting those leads into business is also part of their strategy.
This alone will put their member firms streets ahead of many of their local competitors and will create a perceived value in independent firm members as part of a national brand.
How do you think other national brands will approach your market and win over your clients? The answer is of course, by identifying the clients and customers they intend to serve and providing products and services at a price those customers can afford, whilst providing exceptional client care.
As these brands enter the UK market space what impact will this have on independent law firm valuations? In reality there is no value in goodwill anymore and if the legal brokers would only stop raising expectations by overvaluing these practices just for the valuation fee, we might see a gradual awakening to this fact in the real world.
Keeping work in progress and debtors and expecting one-third of turnover as a valuation is NOT realistic in this environment.
Having completed some 60 mergers to date we have failed to realise hardly any value in the practices involved. Our success has been in ensuring the firms, generally distressed, have been able to repay their bank borrowings and that the existing partners minimise their personal liability. Goodwill has simply not been on the agenda.
The delayed implementation of the Jackson report until April 2013 will have a further devastating effect on personal injury practices as those firms that have relied on paying referral fees for their work will find their business model completely unsustainable. With the exception of valuing work in progress and debtors, what value would you place on their business model beyond April 2013?
On a positive note there are buyers out there and if we finally accept that consolidation is inevitable ensuring you present your firm in the best positive light will enhance any value left in your practice.
If you do not have the appetite or the resources to remain independent and the age of the partners is against you, then deciding what your future should be sooner, rather than later, is the most sensible option.
If we accept we have such large numbers that need to merge/be acquired then we also have to accept that this is very much a buyer’s market. The expression that beauty is in the eye of the beholder is very appropriate. There will be a series of trigger points that will put pressure on firms to act. To do nothing and expect this to all go away could be the death knell for your practice.
Act now before it’s too late.
Viv Williams is chief executive of 360 Legal Group and specialises in law firm mergers and valuations.