UPDATE: 27 November 2020 HWL Ebsworth cancels IPO


There will be an opportunity to be an owner of a top Australian law firm when HWL Ebsworth (HWL) lists on the ASX.

Reports are that HWL (to be renamed Alarcon) will be raising $151 million at a share price of $2.30. This will value the company at $407.4 million. Current partners and owners will continue to own more than 60% of the equity in the listed business. 

Assuming 270 partners and a business value of $407.4m, each partner’s practice will be worth on average around $1.5m. Annual revenue of HWL is believed to be around $350m. A $407.4m value is a ratio of 1.16x annual revenue.

It is understood that HWL will be carrying a fair bit of debt at the time of listing, around $232.5m. That’s getting up to $900K per partner. Without this debt the value of each partner’s practice would be closer to $2.4m or a ratio of 1.6x average partner revenue.

The prospectus will explain the rationale for the listing. Hopefully the rationale and execution will be different to the last major ASX professional services listing, Smile Inclusive which was in April 2018.

Smile Inclusive acquired more than 50 dental practices. The company is now in voluntary administration. A consultant with decades of experience in the dental services sector questioned whether Smile Inclusive’s growth forecasts were realistic. He also noted that the dental practices that were acquired were generally small and were incompatible with the management overheads that were being proposed. Ultimately, Smile Inclusive could not service its debts and it went into administration. 

For HWL/Alarcon, how will additional value be created so that $2.30 becomes $2.31 and so on? Will changing the business structure from a partnership to a public company attract more clients or improve the quality of its services? For Smile Inclusive, the aggregation didn’t make better dentists or cause an influx of new patients. However, its additional overheads and debt helped to seal its demise.