A world of opportunity
A publicly-listed law firm’s acquisition of an alternative law company signals a shift in legal market strategy.
It was yet another sign that the business of legal services is changing quickly. DWF Law, which touts itself as Britain's largest publicly traded law firm, has bought Mindcrest, a legal managed services business operating mainly in India.
DWF, which has been on a buying spree since its £95-million initial public offering last year, is paying US$18.5 million in cash and shares for Mindcrest, a Chicago-based firm with 360 employees, most of whom are based in Pune, India. Like other alternative legal service providers, Mindcrest offers low-cost document review and legal process outsourcing.
The purchase of Mindcrest follows last year's acquisition by one of the Big Four accounting firms, EY (Ernst & Young) of the legal managed services business of Thomson Reuters, which also has its operations concentrated in India.
But DWF's move is different. "It's important because it's a law firm making the acquisition," says Jordan Furlong, an Ottawa-based legal consultant. "Up until this point, all the acquisitions of this type have been made by non-law firms like EY. People will see this as a turning point at which law firm strategy began to change in earnest."
Founded in Liverpool, England, in 1977 as Davies Wallis Foyster, DWF has morphed into an international player with 3,600 employees in 31 offices on four continents. It reported revenue of £272.4 million in the year that ended April 30, 2019.
Andrew Leaitherland, DWF's CEO, says the company sees itself as a disruptor of an overly complacent business. "What we're seeking to do is transform legal services," he recently told investors. "We look at legal services as a very slow, reactive marketplace that (provides) a fantastic market opportunity to transform into a more efficient platform to deliver the right services to clients in the right locations and at the right price."
DWF still provides what it terms as "complex" legal services in areas like litigation and regulatory services using lawyers charging hourly rates. But it sees an opportunity in offering its clients managed services of more routine work that can be handled on an annual contractual basis at a lower cost.
The firm has been an acquisition spree, expanding its legal presence in Poland, Spain and Germany. It even has its sights set on expanding in Canada. "We look at Canada as an exciting market, especially on the insurance sector side," Leaitherland recently told investors. DWF Claims, an insurance-claims management business, already has an operation in Toronto with about 25 employees.
But there are obstacles to its ambitions. DWF can't just merge with a Canadian law firm on account of non-lawyers being prohibited from owning and operating law firms. The same is true in the U.S, even though there have been growing calls for liberalization of the rules to allow for the creation of "alternative business structures" that would allow law firms to raise outside capital. But these calls are met with strong resistance, too. (A DWF spokesman says if it can't make an outright acquisition, it could decide on an association with a Canadian law firm where we would "identify opportunities where we can work together and refer suitable work to each other.")
Fred Headon, former president of the CBA, chaired the association's Legal Futures Initiative in 2014. The CBA produced a study that recommended allowing outside capital in law firms but also proposed additional regulatory provisions that would mitigate the risks that could arise. Law societies have so far rejected opening the door to new capital structures. Headon, who was in private practice before joining Air Canada as assistant general counsel, says that as a buyer of legal services, he now looks at things differently, prioritizing timely, cost-effective results. "Traditional firms need to find ways to deliver the services themselves or partner with someone who can."
McCarthy Tétrault has opted for the first solution. In 2017, it merged with Wortzmans, a law firm specializing in e-discovery and transformed it into a separate division called MT3. The division now has 30 employees and 100 contract lawyers across the country working on e-discovery projects and a range of other services, including compliance reviews, lease reviews and supporting litigation and investigations.
Susan Wortzman, a McCarthy partner and MT3's president, sees the DWF's purchase as a strategic move. "It's building DWF and giving them the resources to provide new services," she says.
Darrel Pink, former executive director of the Nova Scotia Barristers' Society, says that the DWF acquisition is another sign of the changing nature of legal practice internationally even though the rate of reform in Canada has been slow. In the U.S., states like Arizona and Utah are discussing proposals that would in effect would allow firms to open themselves up to outside capital, says Pink, who practices professional responsibility law with Steinecke Maciura Leblanc.
Gillian Hadfield, a professor of law and strategic management at the University of Toronto, says that law firms have to figure out how to partner with clients to provide them with modern solutions to their legal service requirements. In addition to her academic work, Hadfield is a member of a task force in Utah that has recommended reform of the legal business by setting up a state regulator that would license companies that offer legal services and not just individual lawyers. This would effectively open up law firms to outside capital, as in the UK and Australia.
According to Hadfield, the current regulatory structure for law is inhibiting innovation, cost reduction, quality improvement and innovative service delivery. "It runs the gamut from access to justice problems for ordinary people all the way through to big global businesses."
"Global business needs really sharp, integrated legal navigational help but our conventional law firms have not adapted very well to that," she said. "You've had big clients like Cisco, Google, Apple and Intel telling their lawyers this for well over a decade," she said.
"If DWF is saying there's a big market opportunity here, they're absolutely correct."