Miller: Fascinating time for the legal market
City law firm Kingsley Napley has launched a strategic regulatory advice service for private equity firms and other investors eyeing up the UK and international legal market.
The move comes at a time when external investment in the law appears to be speeding up, with several announcements in recent weeks.
Stratify, led by Iain Miller, a partner well known for his legal regulation expertise, has brought in Crispin Passmore as a senior consultant.
Mr Passmore was a director of both the Legal Services Board and Solicitors Regulation Authority before launching his own consultancy business six years ago, which he has now folded into Stratify.
He has advised various alternative business structures (ABSs) that have launched in recent years and also been active in advising on opportunities in the US, which is moving – albeit very slowly – towards opening up to external investment for law firms.
Mr Miller, head of Kingsley Napley’s legal services regulatory team, said: “This is a fascinating time for the legal market. As regulatory frameworks continue to evolve here and internationally, traditional business models and players are diversifying so there is growing demand for strategic advice on the optimal regulatory structure and risk-profile to achieve business goals.
“We already advise an array of clients including private equity firms, US law firms, tech start-up founders and others on the regulatory aspects of their interest in the UK legal market, in addition to existing law firm management considering changes to their practice structure or the services they offer.
“Crispin coming on-board will enhance our offering. He has impeccable credentials in this area, impressive international connections and together we have a uniquely expert service for clients.”
Mr Passmore said “the time is right” for an offering like Stratify. “Funders and new entrants to the legal market need advice on the regulatory landscape and existing law firm leaders are aware there may be smarter options for how they structure their business to keep pace with regulatory developments.
“This spans not only those with interests in the UK but US and other international markets too.
“The legal market is undergoing unprecedented change and there is significant interest in the opportunities in legal services right now.”
Just this week, we reported on a professional services business focused on finance and accountancy making its first foray into the law with the £6.1m acquisition of a Surrey law firm, following on from a new private equity player entering the market by buying a Midlands law firm last week.
We also revealed that a Gulf sovereign wealth fund had invested in a Leeds-based ABS, while in September, Stowe Family Law was sold by its private equity owner to a global investment giant again entering the legal market for the first time.
Mr Passmore predicted that this steady flow of deals would continue and become more visible.
“There is a gradual maturing of how investment is viewed – from law firms and investors,” he explained.
“They have seen good and not-so-good examples and are working out how to make it work. Many investors are seeing the benefits of stable cash flows, consistent growth opportunities for well-run firms and, even in a liberalised market, a robust moat around firms.
“More firms are seeing what they need to do to be ‘investment ready’. Stronger governance, corporatisation of management and remuneration, clarity about strategy for growth – and how any capital raised will be deployed – are examples of this.”
Mr Passmore said another factor was the growing sense that artificial intelligence would support “serious productivity increases” at law firms and had the potential to disrupt the traditional model.
“Serious capital and long-term horizons – neither of which partnerships are well set up for – are required Private equity often offers patient capital, contrary to common myths about asset stripping PE.”
He added: “The growth of alternative providers – be they at the corporate end like Axiom, or consumer tech business like Rocket Lawyer, or start-ups like LawHive and amicable – are usually backed by major investors and as they grow their investors get more comfortable with the regulated legal environment.
“Firms like Fletchers and Stowe are showing what is possible and setting the standards for others.”
Mr Passmore said US investors had become increasingly experienced in other professional services sectors and were now turning to the law.
“This means that there are more investors from US looking at UK, and to some extent the other direction. Cross-border growth requires imagination on structure to navigate regulatory restrictions.
“Emerging expertise amongst advisers in finance and regulatory issues is increasing confidence among investors that there is a clear route to invest.”
Currently two states in the US allow ABSs – Arizona, which has led the way by permanently adopting them in 2021 – and Utah, which began a pilot with a regulatory sandbox the year before.
Washington is set to launch a pilot soon too, while an interim report by the Commission on Indiana’s Legal Future recommended in the summer that it also follow Utah’s lead by creating a regulatory sandbox programme that “allows entities to offer innovative forms of legal services in a controlled manner outside the bounds of the typical rules governing the legal profession”.
The Arizona programme recently reached the milestone of issuing 100 ABS licences, one of the newest of which was giving to Rocket Lawyer. It now unique in holding ABS licences in England and Wales and Arizona, as well as being authorised by the Utah sandbox.
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