Outside Legal Investment: Drafting a BigLaw S-1

Jordan Furlong provides an excellent overview of where outside investment in legal entities stands now, and where it is headed. The U.K. is well ahead of the U.S., where the ABA has released a trial balloon on the subject. What I like best about Jordan's perspective is this: it is not Global BigLaw-centric. When the U.K. first broached the idea of outside investment in law firms, there was much talk of which "Magic Circle" firm would do best under a more open regime. Now, with the many non-law firm actors in the legal industry, you get a sense that many law firms will watch the legal private equity parade from the sidelines. I think the large global law firms with a London HQ may be better positioned long term than U.S.-based firms. Which got me thinking: what would a BigLaw securities registration statement look like? I understand that there will likely not be a full-on IPO, but even private placements need some discussion of risk factors. Will BigLaw firm B write the opinion letter as to the adequacy of disclosures of BigLaw firm A? How much would that cost? So here are a few risk factors I can think of, feel free to add your own in the comments: 1. Over 50% of our revenues are attributable to 20 of our top 50 clients. 2. All of the clients mentioned in Risk Factor 1 are on month-to-month retainer agreements, terminable upon 30 days notice in that clients' sole discretion. 3. In fact, all of our client retainer agreements are terminable as in Risk Factor 2. 4. Nearly all of our top 50 clients, constituting over 80% of our annual revenues, have ongoing programs to reduce (a) annual spend; (b) effective hourly rates; and (c) number of attorneys charging time to their matters. Currently 30% of our top 50 clients have put new business on an RFP process. Five of those clients did not invite us into the second phase of the RFP. 5. There are only 5 relationship partners responsible for our top 20 clients by revenue. None of those partners has an employment agreement with the Firm, and all may depart upon 90 days notice. 6. We lease 750,000 rentable square feet of office space in the continental United States. Of that, only 85% is currently occupied. The term of these lease agreements ranges from 5 to 15 years. 7. We have 100 lawyers with three years or less experience with the Firm. Currently only 20 of them are working on any matters for our top 50 clients by annual revenue. 8. This year, approximately 10% of potential new client opportunities were declined because of conflicts with existing clients. 9. Approximately 80% of our non-equity partners have originated business that, on an annual basis, is less than 20% of their total annual compensation. 10. We are currently running Windows XP on over 90% of our firm-owned computers, and we are typing these Risk Factors with Word 97. That's just off the top of my head, I haven't worked on a private placement in a few years. I think the negotiations between BigLaw Firm A, BigLaw Firm B and the underwriters over the terms of the disclosures and the opinion letter would make must-see reality TV.

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