It’s Not Just About the Money: Why a Law Firm Decided to Sell a Minority Stake to a Private Equity Firm

Wotton + Kearney, a fast-growing Australian and New Zealand-based law firm specializing in insurance law, caught the eye last week when it announced it had sold a minority stake in the firm to a private equity firm for an undisclosed amount.

The move marks the first private equity investment in a law firm in Australia, and possibly the world.

Private equity firm, Straight Bat, has taken a 30% stake in the company, an amount that will be diluted over time as new partners join.

David Kearney, managing partner of Wotton + Kearney, said the company would use the money to continue growing. He found equity financing more attractive than other ways to raise money, he said, because while debt financing is currently cheap, it won’t stay that way. And the company also wants to draw on the expertise of the two Straight Bat partners who will join its board as non-executive directors, he said.

“It gives us a little more punch in terms of running an efficient and profitable business. And that’s ultimately what we’re looking to achieve,” Kearney said.

Steve Gledden, managing director of Straight Bat and one of two partners at the private equity firm who will serve on the law firm’s board, has worked in management consulting. The other, Rob Nicholls, has held senior positions in banking and finance. Both have extensive experience in private equity.

“What we bring to the board aren’t insurance experts, not law firm experts — that’s what we do well — but accelerated growth experts,” Kearney said.

The company involves two people who have seen many different businesses in a variety of areas and have developed a good idea of ​​what growth strategies have worked for them, he added.

Unlike many other law firm leaders, Kearney doesn’t view law firms as that different from many other businesses in other industries, at least not firms run like his.

He highlights how partners work with his firm’s clients, for example. Each client has about 20 partners working with them, so if Wotten + Kearney loses a partner, the departing lawyer does not take clients from the firm.

“That’s probably a fundamental difference between ours and some law firms,” ​​Kearney said. “The brand has real power, instead of just focusing on individual partner brands.”

The business model and the company’s particular focus on insurance were also attractive to Straight Bat, he said.

Straight Bat expects to retain its investment in the company longer than the typical private equity term of three to five years. Private equity firms typically realize their capital gains on investments by selling, but Kearny said “there hasn’t been much discussion” about it.

“Unlike other investments, where it’s easy to find another buyer, they recognize that an investment in a law firm is relatively illiquid,” Kearney said. “It will be interesting to see where the market for legal services [in insurance] it’s in 10, 20, 30 years. Global companies may one day dominate. There could be a number of potential buyers and it could be another law firm.

Law firms rarely bring in outside investors, but Kearney said if Wotten + Kearney’s expansion is successful, investors’ views of law firms may change.

Wotten + Kearney is an incorporated law firm and partners receive salary and dividends. Straight Bat will receive dividends on its 30% stake. As more lawyers are promoted to partners and issue stock in the company, Straight Bat’s stake will be diluted.

Kearney said the private equity investor was comfortable with a drop in its stake based on the companies’ growth prospects.

Founded in 2002, Wotton + Kearney is the largest commercial insurance legal specialist in Australasia, with 57 partners and over 300 specialist lawyers. The company has already begun its expansion, having recently opened an office in Adelaide.

Financial accounts filed with Australia’s business regulator show Wotton + Kearney had revenue of A$80.4m (US$55.8m) in the 2021 financial year , an increase of 22.4% over the previous year. Kearney said profit for the fiscal year ending this month will be about 11% higher, which he said is lower than expected as COVID slowed activity earlier this year.

Wotton + Kearney said it plans to expand into new lines of insurance, particularly the huge health insurance market. He also plans to expand geographically, first to Canberra and then to Asia. Many insurers are global companies, so Wotton + Kearney might also seek to act for them overseas. It is currently considering expanding to Singapore, Kearney said.

The company also plans to provide more data solutions to its insurer customers. It resolves thousands of insurance claims and plans to leverage data to help customers make better decisions about how they handle insurance policies, the risks they underwrite and pricing, Kearney said. .

Straight Bat’s Gledden, one of the law firm’s newest board members, has been involved with legal technology ventures in the United States. And that, Kearney said, is another reason the law firm sees the private equity firm as an attractive investor.

“It brings a really compelling message and experience to this data journey,” Kearney said. “It’s not just about the money.”