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February 26, 2009 1:55 PM

Dow Might Be Down, But Stock of One Law Firm Is Up

Posted by Brian Baxter

On Wednesday Australia's Slater & Gordon, the world's first publicly traded law firm, reported a 22.4 percent increase in net profit for the six months leading up to December 31.

The 160-lawyer firm reported profits of $8.46 million, up from $6.9 million for the previous six-month period. S&G's revenue increased 35 percent to $50.5 million over the same time frame. The firm is reported to be looking at acquisition opportunities and expects earnings to rise into the second half of 2009. (Hat Tip: Securities Docket.)

S&G initially went public in Australia in May 2007. The IPO was the first for a law firm after new legislation went into effect permitting the investment of non-lawyers.

With a similar law to be enacted in the U.K. in 2011, S&G's listing drew the interest of many British firms.

At the time of its listing, seven equity partners were given stakes worth between $2 million and $8.5 million, and 42 lawyers and staff received shares in the newly created public company. The Melbourne-based plaintiffs firm had a market capitalization of $89.7 million. (S&G's current market cap is now $113.5 million and the firm's stock is trading at roughly $1 per share; all dollar amounts in this story have been converted from Australian dollars.)

In December, our chief European correspondent, Richard Lloyd, spent some time Down Under at S&G and wrote this insightful feature story about the firm, which is known for its contingency fee personal injury work and securities class actions (including a $150 million settlement in 1996 on behalf of 30,000 landowners in Papua New Guinea against BHP Billiton).

Lloyd reported that last April, The Australian recommended S&G's stock as one of 10 "survival shares for investors marooned in a sea of trouble."

When we read about the firm's results earlier today, we wondered, "What would Wall Street say about its own suddenly budget-tightening, billables-conscious law firms?"

We turned to a July 2007 story by The American Lawyer's Amy Kolz, who interviewed several investment bankers, law firm consultants, and academics in order to attach values to Wall Street mainstays like Cravath, Swaine & Moore, Wachtell, Lipton, Rosen & Katz, and Skadden, Arps, Slate, Meagher & Flom.

Kolz looked at business models and growth statistics at companies structurally similar to law firms--such as consulting firm BearingPoint and executive search firm Korn/Ferry--as a means of ascribing values based on a multiple of each particular firm's 2007 earnings. (The resulting analysis can be found in the chart below.)

Maybe it's a sign of the times that BearingPoint filed for bankruptcy earlier this month.

Of course, it's highly unlikely that the U.S. legal industry, which is governed by a hodgepodge of state laws and federal regulations, will adopt anything close to what's on the books in Australia or under consideration in the U.K. anytime soon.

As for Slater & Gordon, the firm has been busy acquiring nine other firms within the past year, most recently scooping up the personal injury practice of Brisbane firm Carter Capner.

The company--that's what it is, after all--is now focusing on assimilating its new assets.

"[The integration] process is continuing but we are a long way down the right path," S&G managing director Andrew Grech told Australian newspaper WA Today after the release of its earnings statement.


Chart

 

Click on the image for a larger view.

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