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

Wotton + Kearney, a fast-growing law firm based in Australia and New Zealand that specializes in insurance law, attracted attention last week when it announced it had sold a minority stake in the firm to a private equity company for an undisclosed sum.

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

The private equity firm, Straight Bat, has taken a 30% stake in the firm—an amount that will be diluted over time as new partners come on board.

Wotton + Kearney chief executive partner David Kearney said the firm will use the money to pursue growth. It found equity funding more attractive than other means of raising money, he said, because while debt funding is currently cheap, it won’t remain so. And the firm 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 bit more punch in terms of how to run an effective, profitable business. And that ultimately is what we’re looking to achieve,” Kearney said.

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

“What we are bringing on to the board are not individuals who are experts in insurance, not individuals who are experts in law firms—that’s what we do well—but they are experts in accelerated growth,” Kearney said.

The firm is bringing in two individuals who have seen a lot of different businesses in a variety of fields and have developed a good sense of what growth strategies have worked for them, he added.

Unlike many other firm leaders, Kearney doesn’t consider law firms all that different from many other businesses in other sectors—at least not firms run like his.

He points to the way partners work with clients at his firm, for example. Each client has about 20 partners working with them, so if Wotten + Kearney loses a partner, the departing lawyer doesn’t take the firm’s clients.

“That’s probably a fundamental difference between ours and some law firms,” Kearney said. “There is a real power to the brand—as opposed to being all about individual partner brands.”

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

Straight Bat is planning to hold its investment in the firm for longer than the typical three-to-five-year private equity timeframe. Private equity firms typically realize their capital gains on investments by selling, but Kearny said “there hasn’t been much discussion” about this.

“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’ll be interesting to see where the legal services market [in insurance] is in 10, 20, 30 years. It might be that global firms one day dominate. There could be a number of potential buyers and it might be another law firm.”

Law firms rarely take outside investors, but Kearney said if Wotten + Kearney’s expansion is a success, investors’ views on law firms might change.

Wotten + Kearney is an incorporated law firm and partners earn a salary and dividends. Straight Bat will receive dividends on its 30% stake. As more lawyers are promoted to partner and issued shares in the business, Straight Bat’s stake will be diluted.

Kearney said the private equity investor was comfortable with a decline in its shareholding based on the businesses’ growth prospects.

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

Financial accounts filed with Australia’s corporate regulator show that Wotton + Kearney recorded A$80.4 million (US$55.8 million) in revenue in the 2021 financial year—an increase of 22.4% from the year before. Kearney said profit in the financial year that ends this month will be about 11% higher, which he said is below forecast because COVID slowed activity earlier this year.

Wotton + Kearney said it plans to expand into new insurance lines—in particular, the huge health insurance market. It also plans to expand geographically—first to Canberra and then to Asia. Many insurers are global businesses, so Wotton + Kearney may look to act for them offshore as well. It is currently considering expanding to Singapore, Kearney said.

The firm also plans to provide more data solutions to its insurance clients. It resolves thousands of insurance claims and plans to mine the data to help clients make better decisions about how they process insurance policies, which risks they write, and pricing, Kearney said.

Straight Bat’s Gledden, one of the law firm’s new board members, has been involved in legal tech businesses in the US And that, Kearney said, is another reason the law firm considers the private equity firm an attractive investor.

“It brings a really compelling message and experience in relation to this data journey,” Kearney said. “This is not only about money.”

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