Britain, apparently, is the only place where you can be the head of a legal firm without being a lawyer.
It’s an unusual fact and has been the case since 2007, when rules governing the ownership of law firms were relaxed.
It is also why Nicola Foulston is currently the chief executive of AIM-listed law firm Rosenblatt Group Plc (LON:RBGP).
Petrolheads will recognise Foulston from her stint as the boss of motor racing circuit Brands Hatch, though she has been in charge at Rosenblatt since 2016.
Brands Hatch was eventually sold to ad giant Interpublic for around 25 times its value when she took over and building up Rosenblatt in a similar vein is the focus now.
The relaxation of ownership rules has allowed equity-based PLC structures rather than partnerships and this has already led to a steady stream of law firms listing on the UK stock markets.
Rosenblatt floated on AIM just over a year ago and Foulston is convinced equity ownership for legal practices is the way forward.
“It aligns fee earners and staff with clients and external shareholders.
“Equity is a better way to motivate and tie-in people than a private equity partner model.”
Fee earners now shareholders
Every fee earner at Rosenblatt is a shareholder, while bonuses are not based on revenues.
“It’s a people business and needs to have the correct structure to tie in the assets and motivate them.
“Share ownership is a hugely important part of this process”.
It’s also more equitable, she adds, with ‘no dictators’ at the top, though for now she remains one of the few non-lawyers running a top firm.
Disputes at the core
As you would expect for a litigation-based law firm, disputes are the core revenue generator for the business.
Rosenblatt, for example, worked for Southend Airport owner Stobart during its recent boardroom bust-up.
Foulston, though, makes it very clear that her role is to wear the commercial hat and not be involved in decisions about whether to take on cases and if they are winnable.
Margins and a focus on the customer are her concerns.
That showed through in the eight-month period to December when Rosenblatt made an underlying profit margin of about 34%.
Revenue per fee earner was £400,000 on average, which meant total turnover of £12.5mln, a 19% increase in the period since it transformed into a PLC.
About 15% of the business is focused on corporate work like M&A, though the uncertainty over Brexit kept this side of the business trading at subdued levels.
Foulston’s intention is to broaden the group’s activities into other areas of legal and professional services.
A litigation fund was established in November with five cases currently under consideration.
Again, boosting margins is the rationale – “It allows us to own and control our own cases: both the legal and financial challenges.”
That flexibility on funding means it can cherry pick the cases it wants to take on.
“We can work for free on a no-win, no-fee basis, fund it ourselves or partially fund it from the litigation fund.”
None of the other listed law firms has this flexibility, she adds, not even Burford Capital, the 600-pound gorilla of the sector with a market cap of £3.5bn and the largest company on AIM.
“Rosenblatt is the first law firm of its kind to offer such finance to its clients as well as to other law firms and we believe offers increased opportunities to monetise cases,” said the statement with the last set of results.
But it’s not just in funding where this flexibility helps.
Cases, too, can be restructured to make them more winnable says Foulston, something seemingly evident in an 84% success rate to this point.
Expansion the next step
Rosenblatt has just passed its one-year listing anniversary but has yet to make use of its listed paper for any deals.
That might be about to change.
Taxation specialists, forensic accountants, financial crime are all niches Foulston sees as potential avenues where it can expand as part of the push towards becoming a large professional services service group.
Anything, essentially, that strengthens its hand in situations of contention, dispute or crisis.
Indeed, one reason it won’t work for banks is the potential for conflict of interest further down the line in financial crime actions.
New types of asset classes such as the litigation finance fund are other areas of interest.
A sharp rise in its market value recently has bolstered Rosenblatt’s strong financial position even further.
Since January, the shares have rallied by about a third to 105p, which is an 11% rise on the 95p float price and valuing the group at £83mln. There is also a dividend yield currently of 2.7%.
That market cap might look high relative to revenues and profits, but litigation of the complex, high margin nature Rosenblatt specialises in is a growing business.
And with no debt and the cash of £13mln it raised for the business on IPO largely intact, there is no shortage of firepower for deals though Foulston says it will be very choosy with its targets.