For those with IB experience - what would a V5 firm be worth? Keen to hear your thoughts on what a firm like Latham / Kirkland would be worth if all partners sold out / what its market cap would be if it IPO’d (like Goldman Sachs when it went public as a partnership) - mostly just for interest’s sake, as I know historically public law firms haven’t done well due to different incentive structures when profits are directed towards shareholders.

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Latham wouldn’t be worth more than like $10 based on how people talk about it online 😂

likefunny

Thanks for missing the sarcasm

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Depends what type of multiple you applied to the profits firms earn or what type of discount you applied going forward. But if I was looking at this from the outside I’d care far more about how much profits they actually make than the PEP reported by the firms.

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What I think C1 is saying is that when valuing a law firm we should look at total profit rather than profit / equity partner.

This is a fairly obvious point - Microsoft is obviously valued on the basis of total profit rather than profit / shareholder, and so we should value law firms in the same way.

As an example, Latham would be worth more than a firm like Wachtell despite Wachtell having a much higher PEP because Latham’s total profit is higher as a result of Latham having a higher number of equity partners.

C1 - I’m not sure that I understand what you mean by “gaming” this number. Do you mean restricting the number of equity partners so that total profits are divided by fewer partners? In my mind, that’s not “gaming” anything, that’s just smart business by the equity partner squad (i.e. the equivalent of a closely held company not issuing any new shares so not needing to split profits with any other shareholders). Or do you mean creative accounting where they’re booking time billed rather than cash actually in the door? In which case, you should speak to IFRS and ask them to update their accounting standards.

*Laughs in 5.4

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