Leader: Law firms should heed accountancy's listing mistakes

IT’S FASCINATING to see law firm Gateley outline plans for an AIM listing – which would make it the first to IPO in the UK. Made possible with the opening up of ownership through the Legal Services Act, it’s ground-breaking stuff.

Not so ground-breaking for accountants though.

They’ve had several pops at market-listing over the years. But you’ll struggle to name an accounting practice listed now. In fact, there aren’t any…unless you count insolvency specialist Begbies Traynor.

The names of the fallen are: Numerica; Vantis; and RSM Tenon. All collapsed and now dissipated, absorbed or fragmented into other firms. Their demise came about for a myriad of problems: being listed was not the sole reason in itself. However, their stock exchange listings were absolutely integral to their problems.

Listing opened up the firms to investment. And that investment was used to create more rapid growth than would have been possible organically. But this led to overexpansion and, also, overpaying in deals. Bringing together lots of different firms, offices and cultures is tough enough as it is.

In the public eye

Being listed places you under the gaze of shareholders, and involves lots of public reporting. In other words, the potential for dirty linen to be washed in public.

Professional services firms are ‘people businesses’, and negative attention makes life a lot tougher on retention and recruitment.

External shareholders and investors want to see that share price tick up and up. As such, this puts pressure on the firm to operate in shorter timeframes.

And finally, just for good measure, converting partners into a directorship is fraught with difficulties. And this is the crux: can the firm keep up its ‘partner’ remuneration when another layer of shareholders and dividend receivers has been lobbed on top of them? A problem exacerbated if the share price drops – the equity value for those within the firm also falls. And who makes the decisions? Such a move makes it hard to remain collegiate.

It would also be interesting to know whether Gateley will use the opportunity to branch out and acquire accountants…that would certainly add another layer of complexity to matters, but would no doubt keep the headline writers happy.

I won’t pretend to know all the ins and outs of Gateley’s direction of travel – it’s hard enough keeping up with all the accountancy firms. But I think Gateley will need to be extra careful in this move. I wish them all the best of luck, because they’ll need a big dose of it.

Kevin Reed is editor of both Accountancy Age and Financial Director

This article first appeared in sister publication Legal Week