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July 19, 2010 4:15 PM

In London, A New Model Rises

Posted by Zach Lowe

Matthew-Hudson We read with great interest this morning this release about Matthew Hudson, a former partner at SJ Berwin, O'Melveny & Myers, and Proskauer Rose who has formed his own firm with seed backing from several private equity funds. Some of those funds plan to take a stake in Hudson's law firm, MJ Hudson, when the Legal Services Act goes into effect in the U.K. next year, allowing outside investors to take stakes in law firms and firms to offer publicly traded shares. The investment in Hudson's case will go the other way, too; Hudson is free to buy up positions in the PE funds that will invest in his firm, thereby ensuring that his interests are intertwined completely with theirs. 

Even more: Hudson wants to move away from the billable hour and instead have his PE clients compensate him with a percentage fee based on the value of a particular transaction. 

On his first day of work at his new firm, Hudson took some time to chat with us about his move.

I assume the Legal Services Act prompted this move, but how long has it been in the works? How long have you been contemplating it?

I've been thinking about this for the last six months. The legislation is really just more of a catalyst. Times have changed a bit. My clients are hedge funds and private equity funds, and they are rewarded based on the returns they make for their investors. So they appreciate it if you would align your interests with theirs. Charging by the transaction instead of by the hour and investing in the [private equity] fund means aligning our interests. If you do well, I do well, and if I do well, you do well. 

So this is just as much about moving away from the billable hour as it is the fact that the Legal Services Act will allow these funds to buy equity in your law firm? 

When you work out the cost of a deal now, the one line you leave blank is the line for legal costs. It's always variable, because it is based on time. The banking fees, the other advisory fees--those are always based on a percentage of the transaction. That's quite irritating to clients. Billing by the hour means you may end up rewarding inefficiency. 

The Legal Services Act hasn't gone into effect yet, so you don't have a lot of models over there that you can look to and say, "These six or seven folks have already done this and been successful, so I should be able to do it, too." Are you nervous about being one of the first, if not the first? Have people told you you're crazy, that staying within a large firm would be safer?

If you look at my history, I was a cofounder of the private equity unit at SJ Berwin. I set up Proskauer Rose in London from scratch. I set up O'Melveny & Myers over here as well. All I've done in the legal sector is build new opportunities, where you take a business plan and execute it. It feels more instinctive to me, perhaps. I've never taken a regular position. 

Where did you look for models? Whom did you ask for advice?

I looked stateside, actually, and I looked a lot at the Wilson Sonsini Goodrich & Rosati model in venture capital, where they take stock in the client because the client might not be able to pay their legal fees. You hope that one of those clients turns into Google. I do quite admire the Wilson Sonsini model. 

How big is your firm now? How big do you see it getting? 

I've started a bit small. I've got a couple of associates with me now from O'Melveny & Myers, and I've got some guys in the wings that I can't mention at the moment, but who will be joining us. I like the expression, "Start small, think big, grow fast."

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From The Times (20 July 2010, p41)

Coller denies plans to back new City law firm

A new City law firm that hopes to take on non-lawyer shareholders under new rule changes was forced to placate its star client yesterday after Coller Capital distanced itself from claims that it was providing support.

The investment vehicle of Jeremy Coller, the private equity investor, denied that it was providing start-up funding for MJ Hudson, a boutique law firm that will specialise in advising investment funds.

A spokeswoman for Coller Capital said that it was a client of MJ Hudson but that "Coller Capital is categorically not an investor in MJ Hudson, nor is Jeremy Coller, and nor do they intend to become investors."

Project fees and performance fees are the best way to ensure transparency and value to the client. Hourly rates will always raise doubts in the clients mind as to what they are being charged.

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