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

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

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

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?? 280 240 200 160 120 80 40 U.S. Legal sector value add (2005 US$ billions) 0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Economic recessions 2012 2014 2016 0 Source: U.S. Bureau of Labor Statistics (BEA); analysis by Matt Leichter Email: rob.millard@venturisconsulting.com

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*

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-0.40- Belgium- Belgium- 0.42-0.42- Portugal- Portugal- 0.43- France- France- 0.56-0.56- Eurozone- Eurozone- 0.63-0.63- Spain- Spain- 0.67-0.67- Germany- Germany- Italy- Italy- 0.77-0.77- Ireland- Ireland- 0.78-0.78- UK- UK- 1.05-1.05- USA- USA- 1.66-1.66-0---------0.5--------1.0-------1.5-------2.0- Legal-liability-cost,-%-of-GDP- 0.40-0.43-0.46-0.68-0.68- Denmark- Denmark- 0.46- Source:(BTI(Consul0ng(emailing,(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

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 2013. 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

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 $1 billion In May 2015, UK law firm Gateley announced intent to list on London Alternative Investments Market (AIM) Revenues (USD, millions) 400 300 150$ 200 $ 100$ $ 100 50$ $ 00$ 2007 2008 2009 2010 2011 2012 $363 million 2013

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

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

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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