Mishcon’s IPO U-turn highlights risks of going public

It is 15 years since the Legal Services Act and seven years since the first traditional law firm opted to list on the London Stock Exchange.

Yet despite having so long to think about the supposed windfalls that a flotation could bring, just five firms have gone public. Mishcon de Reya has now revealed that it is the latest firm to approach the cliff, take a look over the edge and run a mile back inland.

You can lead this profession to the stock exchange, it would seem, but you can’t make them drink in the potential opportunities on offer.

Yet it was only six months ago that a third of firms reported they were considering going public in search of funds for expansion. The organisation behind the survey of 200 partners said the results revealed an ‘expanding appetite amongst firms’.

If there is an appetite for IPO then for some reason it appears to disappear the moment the waiter brings out the first course.

Mishcon’s own statement refers to market conditions as the key factor in putting plans on the back-burner. There’s no doubt that these are tricky times for any legal business to go public, with the very real (and in some of those five firms’ cases realised) possibility that the shares can plummet in value. The feeling of watching your firm’s worth deteriorate every day cannot be an enticing one, particularly given that the factors affecting performance are largely out of your control.

It may also be the case that firms do not need the stock market to secure the funding they need. Funding appears to be readily available, and many businesses did so well during the pandemic that they are sitting on plenty of capital already. Why take the risk of giving the business over to market forces when there’s cash to spare?

The level of scrutiny on listed law firms is not for the faint-hearted either. There being so few firms who have taken the plunge, every mild profit warning or missed dividend payment is pored over by the financial and trade press in a way that private firms never have to endure. A fall in profits for a traditional firm will only manifest some nine months after the end of the financial year, at which point conditions may already have changed and the media interest in historic performance is reduced.

And perhaps we come down to the same point that naysayers made back when the legal profession was liberalised: this sector is just not suited to the rigours of a listed business. Shareholders demanding profit increases won’t care that disbursements need to be paid or costs are being fixed by legislators. They won’t want to hear about work in progress or cases that could take years to come to a conclusion: they need that next hit and the signs of progress that firms cannot necessarily always provide. Hence why some listed firms get trapped into this self-perpetuating cycle of constantly buying other businesses to feed that shareholder demand – except law firms aren’t like a retailer who buys a similar retailer and continues in essentially the same. Law firms are only about the people that work for them and each has its own culture that cannot easily be absorbed into another.

It may well be that a third of firms are looking at listing, but chances are that when they look in any detail, they find the extra cash is not worth the hassle, the anxiety and the pressure that IPOs can bring. Five floats in seven years is a paltry number, and the signs are it’s unlikely to increase anytime soon.