Private Equity Circling U.K. Law Firms, Waiting for 2011?

[WSJ_law_blog]

Will it be long before we see outside ownership of law firms in the U.K.? Perhaps just a couple of years, reports Bloomberg, in a story out today.

In 2007, the U.K. changed its rules on law-firm ownership. Starting in 2011, when the new rules go into effect, firms will be allowed to accept outside investments. According to Bloomberg, three private equity funds — Fleming Family & Partners Ltd., Phoenix Equity Partners Ltd. and Lyceum Capital Partners LLP — are considering investing in U.K. law firms.

The very notion of outside ownership of law firms strikes us as a bit wacky, only because it’s so foreign — and so rare. We’re only aware of one firm, Australia’s Slater & Gordon, that has embraced the idea. The plaintiffs’ firm started taking public investment in 2007. The firm trades on Sydney’s stock exchange under the symbol SGH. Click here for an American Lawyer story on the firm’s first year or so under the publicly-traded regime.

But more could be on the way, reports Bloomberg. For starters, at some firms, getting hands on cash for expansions, capital projects and the like has never been harder: the global recession has made it much harder for firms to get new loans and lines of credit.

Furthermore, law firms are viewed by many as potentially lucrative places to put one’s money. “Law firms are pretty attractive investments as they have stable cash flows, long track records of business operations and increasingly are much better run,” said John Llewellyn-Lloyd, executive director of Noble Group Ltd., a London-based investment bank.

If and when it does happen, expect to see mid-sized firms the first to be among the early adopters. Don’t expect to see the so-called “Magic Circle” firms — a group that includes Clifford Chance, Slaughter & May, Linklaters, Freshfields and Allen & Overy — jump in headlong. Such firms have scoffed at the idea in the past, saying they don’t need the money.

“We looked into it, but decided it wasn’t right for us,” said Wim Dejonghe, the managing partner of Allen & Overy. “Why would we need the money?”

In the U.S., outside ownership of law firms is prohibited.