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1 The handouts and presentations attached are copyright and trademark protected and provided for individual use only.

2 Funding Capital Expansion in Times of Constrained Demand for Legal Services Our agenda Is demand for legal services constrained? Sources of funding Innovations and trends Options for now

3 Our agenda Is demand for legal services constrained? Sources of funding Innovations and trends Options for now U.S. GDP (2005 US$ billions) Since the 1990s, the traditional legal sector has lost market share U.S. GDP and Legal Sector value added (2005 USD Billions) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Iranian oil crisis Savings & Loan crisis US GDP Y2K Scare and Dotcom crash Global Financial Crisis US Legal Sector?? U.S. Legal sector value add (2005 US$ billions) Economic recessions Source: U.S. Bureau of Labor Statistics (BEA); analysis by Matt Leichter rob.millard@venturisconsulting.com

4 The Big-law Apocalypse has been vastly overstated Consolida)on*seems*likely* to*con)nue,*leaving*it* more*difficult*for*smaller* firms*to*differen)ate*in* ways*that*client*value Key#metrics#of#most#Amlaw#200# law#firms#have#increased# significantly#since#the#gfc# 400# 300# 200# 100# 0# Index#of#revenues#of#Top#50#UK#law#firms#vs# UK#GDP#in#constant#2010#GBP,#1996#=#100# 1996# 1998# 2000# 2002# 2004# 2006# 2008# 2010# 2012# Revenues# Net# operajng# income# $1bn+#p.a.# law#firms# Headcount# Equity# partners# Average# RPL# Average# PEP# Sources:)Top:)Legal)Business)+)UK)Office)for)Na:onal)Sta:s:cs;)VCG)analysis) BoAom:)Aderant)White)Paper,) Big)Law)Future)Looks)Bright, )Dec)2013) Clients can buy or make and are choosing the latter more frequently Cost%of%outside%versus%in.house% Cost%of%outside%versus%in.house% counsel%(usd%per%hour%in%2011)% % counsel%(usd%per%hour%in%2011)% 300% % $307% 300% % 38%%saving% $307% p.h.% 200% % 38%%saving% p.h.% 200% % $191% 100% % $191% p.h.% 100% % p.h.% 0% % 0% Outside% In.house% (assumes% Outside% In.house% 1:1%leverage)% (assumes% 1:1%leverage)% Source'(both'graphics):'General'Counsel'Metrics,'June'2012' Source'(both'graphics):'General'Counsel'Metrics,'June'2012' Movement%of%work%between% Movement%of%work%between% outside%and%in.house%counsel% +50% outside%and%in.house%counsel% +50% Law%firm% +25%% use%down% 42%% Law%firm% +25%% 0% use%down% 42%% 29%%.25%% 0% In.house% 29%%.25%% In.house% use%up%.50%% use%up%.50%% U.S.*companies*with*$1*billion+*in* revenue*moved*$1.1*billion*in*legal* spend*indhouse*in*2014,*on*top*of* $5.8*billion*moved*in*2013.* Source:*BTI*Consul)ng,*15*September*2014*

5 Clients less litigious but USA still > 2x legal liability cost of Europe Bet$the$company-li0ga0on-ma2ers- down-50%-in-the-past-two-years Aggressive-se2lement-strategies- settlement strategies aimed-at-case-elimina0on,-not-trial- at elimination, not trial Complex-transac0onal-work-$-9%- transactional down Numbers-may-creep-up-again,-but- creeping up again, but. Clients Short$term,-clients-are-improving- improving management of complex management-of-complex-ma2ers.- matters 60%-of-corporate-counsel-replacedat-least-one-core-li0ga0on-firm-inthe-last-18-months- Netherlands- Netherlands Belgium- Belgium Portugal- Portugal France- France Eurozone- Eurozone Spain- Spain Germany- Germany- Italy- Italy Ireland- Ireland UK- UK USA- USA Legal-liability-cost,-%-of-GDP Denmark- Denmark Source:(BTI(Consul0ng( ing,(1(October(2014( Source:(NERA(Economic(Consul0ng,(May(2013( Our agenda Is demand for legal services constrained? Sources of funding Innovations and trends Options for now

6 The basic sources Equity capital Bank debt Smart leases Clients Vendors Selling non-core assets including IP-rich practices Concessions from local authorities, etc Ancillary businesses Angel investors Private equity Public equity Factoring / invoice discounting Partner equity versus bank debt Despite low interest rates, many mid-tier UK law firms used the improved trading conditions in 2013/14 to pay down bank debt. Others have been investing in international offices and other growth strategies Shareholder funds as percentage of turnover 100% 80% 60% 40% 20% Arrows indicate the movement in bank overdrafts and long-term lending from Green indicates reduction in bank debt / long term loans; red indicates increase; grey no change Taylor Wessing Macfarlanes Trowers & Hamlins Watson Farley Maclay Murray & Spens Wragge LG Bristows Fladgate 2014 Median 14% Reynolds Porter Chamberlain Holman Fenwick Hill Dickinson Field Fisher % of turnover Lewis Silkin Since 2006, the ratio of Shareholder Funding to Bank Overdraft + Long-term Lending at Addleshaw Goddard has varied significantly. Currently, borrowing is slightly higher than peer firms Berwin Leighton Paisner Pinsent Masons Bird & Bird DWF Stephenson Harwood DAC Beachcroft Nabarro Addleshaw Goddard Olswang Shareholder funds Bank overdraft and long-term loans 2014 Median 33% Simmons & Simmons 0% 0% 5% 10% 15% 20% 25% 30% Source: Companies House data on duedil.com Bank overdraft plus long-term loans as percentage of turnover

7 Our agenda Is demand for legal services constrained? Sources of funding Innovations and trends Options for now Slater & Gordon A publicly listed law firm Listed on Australian Stock Exchange in 2007 Now employs > 2,500 people globally Has achieved roughly 15% return on equity (ROE) between 2010 and 2014 Recent acquisitions include: - Pannone s consumer services and personal injury business ($52 million) - Russell, Jones & Walker ($85 million) Will be the market leader in UK personal injury law after acquiring Quindell PLC s Professional Services Division for $1 billion In May 2015, UK law firm Gateley announced intent to list on London Alternative Investments Market (AIM) Revenues (USD, millions) $ 200 $ 100$ $ $ $ 00$ $363 million 2013

8 Alternative business structures (ABSs) are creating new capitalisation opportunities in England & Wales So,$what$can$we$expect?$ Alternative business structures (ABSs); bundled services Acknowledgements$to$Jordan$Furlong$for$preparing$an$extensive$list$ Our agenda Is demand for legal services constrained? Sources of funding Innovations and trends Options for now

9 Overall key questions What is the (rigorously tested, convincing) value proposition? How much profit will be delivered to the bottom line? How sustainable will the competitive advantage be? What are the risks? What is the appetite for risk? How committed is the firm to making this happen? How much money is needed and when? Some obstacles Poor business case (usually invalid assumptions) Young partners want to invest but older ones want to cash-out Limitation on lawyer-only ownership Competitors with deeper pockets (incl. the Big 4 ) Debt is cheap now but interest rates will rise

10 It$is$always$wise$to$look$ For%myself%I%am%an%op0mist.% ahead,$but$difficult$to$look$ It%does%not%seem%to%be%much% further$than$you$can$see $ use%being%anything%else! $ Winston$Churchill$ Rob$Millard$ T:$+44$1223$655F352$ E:$robert.millard@mollerpsfg.com$ The$Møller$Centre,$Churchill$College,$University$of$Cambridge$

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