Top commercial law firms consider PE investment amid AI worries, says Lincoln; Castlelake PUSU deadline for Easyjet extended
Good morning, Nina Lindholm here with the Europe Wire from the London newsroom.
In the rush to address the challenges and opportunities brought on by AI, the legal sector is becoming increasingly welcoming to private equity ownership, Lewis Gray managing director at Lincoln International, told me. We delve into the complexities of investing in law firms to kick off the week.
We then have an update on Castlelake and Apollo’s pursuit of London-listed budget airline EasyJet.
Opening up
The appetite to invest in the legal sector has flipped upside down, Lewis Gray managing director at Lincoln International, told me. Around five to 10 years ago, private equity was only keen on alternative legal services as “everyone thought the law firm model was not an option for private equity investment.”
Now sponsors are considering whether they could invest directly into a law firm by structuring the investment in a different way, according to Gray. Over the last 12 months, the focus has shifted from the alternative law segment to exploring opportunities with CEOs and managing partners in the UK top 100 commercial law firms.
“No one’s quite made the jump yet, but what we’re seeing is a good indicator that there are early-stage conversations happening.”
This shift is accelerated as firms aim to address the challenges and opportunities of AI, according to Gray. “It’s got to a point where it’s tipping over the edge and people are thinking: ‘we have no choice but to do this,’” he added.
However, the deals are not easy to execute. “You’re trying to convince up to 30 to 40 equity partners – or more – to all have the same perspective on the next strategic steps for the firm,” said Gray.
In the UK, deals in the sector have focused on regional consolidation outside the top 100 firms. In Europe, deal execution is much harder, and Gray said it’s hard to estimate when the region’s legal services will be open more for PE investment. Over in the US, some structural workarounds have been found where the economic substance and the law practicing part are separated, according to Gray.
“You can then invest in the back office and have a management agreement type relationship,” he added.
The workaround is technical – the substance is still directly an investment into a law firm. “It’s not perfect but gets sponsors the exposure they are seeking,” said Gray.
For a deep dive into the UK legal services sector, check out this feature on the topic.
More time
Let’s take a look at an update in a potential take-private deal we are following. London-listed budget airline Easyjet has extended the PUSU deadline for Castlelake, one of the PE firms in pursuit of the company, to align the timeframe with Apollo’s deadline on August 7.
Castlelake was originally due to make its intentions known today.
In July, Easyjet agreed in principle to Apollo’s £7.15 per share offer, which gives an equity value of £5.7 billion ($7.7 billion; €6.7 billion). The bid beat Castlelake’s £4.9 billion offer made in June, following which Easyjet opted to give the PE firm access to “limited commercial information.”
That’s all from me this morning. MK Flynn will write to you later today with the US Wire, and Craig McGlashan is back in his usual slot tomorrow from London.
Cheers,
Nina
