Since you are asking relevant questions from an investment perspective and I might have something to contribute to the matter, I will share some of my own thoughts regarding Fondia. My perspective is strongly that of a lawyer, as I have studied law and have acted both as a provider and a buyer of legal consulting. I have never worked at Fondia nor used their services. However, I know current and former Fondia employees and have exchanged a few words with them about their employer. Nevertheless, the text below is my own view and may differ from how others or Fondia itself see the matter.
When you talk about profitability and benchmarks, you probably mean large Finnish law firms (asianajotoimistot)? For them, profit levels of 30-50% are commonplace, but in my opinion, your framing of the question is incorrect, firstly because they are not actually Fondia’s benchmarks, and secondly because those profitability figures are not comparable.
(N.B. in case someone doesn’t happen to know, “asianajaja” is a professional title reserved only for lawyers who belong to a separate Bar Association; membership requires several years of experience in professional agency work, and only lawyers can be partners in a law firm—about 8% of Finnish lawyers are asianajaja lawyers)
I understand that from an outsider’s perspective, the operations of large law firms and other companies providing legal services may look very similar, and of course both sell legal consulting services. However, clients and assignments differ significantly, and even though identical tasks are handled occasionally, the role of law firms like Fondia is to complement, support, and sometimes even replace the client company’s own legal expertise in daily business operations. The service is offered to the company’s employees, and they can be almost anyone from the specialist level upwards who simply encounter legal problems in their work. Large law firms certainly do this as well (and also for private individuals), but a unique addition to the service offering is advisory provided to the top management of large enterprises. This is the largest “practice” in many large law firms and takes up an immense amount of working hours. Assignments are “project business” at its purest, and they are often familiar to investors and make news headlines in the financial press: M&A, stock exchange listings, corporate demergers or mergers, major construction projects, share issues, bonds, etc. People reading stock exchange releases probably often skip the line that says “The company’s legal advisor was Law Firm X,” but Finland is such a small country that a lawyer versed in the matter can see right from the names who (potentially familiar) persons handled that advisory. To put it bluntly, they handle the post between authorities and large corporations. That correspondence is just extremely complex and is often done under very tight time pressure, and the final content impacts the jobs of thousands of people. Fondia does not compete in that market and (at least under current conditions) it makes no sense for them to try. As for those large operating profits, they are simply distributed to the firm’s owners as a return for their work; the corporate structure enables this practice, and the tax authority strongly encourages it. When corporate dividends are in the nature of salary costs (and often also subject to earned income taxation!) and were treated as such in the company’s bookkeeping, operating profit margins would drop to around 10-15%, familiar from other large consulting firms.
Thus, when looking for numerical benchmarks for Fondia, better options would be, for example, audit firms (KPMG, PwC, EY, Deloitte, etc.) or engineering consulting firms such as Elomatic, Sitowise, Afry, etc. Audit firms also happen to be direct competitors to Fondia through their legal services.
I do not feel that Fondia’s vision of outsourced legal services is bad in any way or that the market is nonexistent. Long-term customer relationships and lawyers who know the client’s operations well are to the advantage of both parties in the business. The success of Fondia’s concept is therefore measured, in my opinion, above all by the retention of customer relationships and how comprehensive a service can be offered to these clients. In expert work, this naturally means that one must be able to acquire, train, and retain personnel suitable for the job, and revenue growth is tied to personnel growth (as well as the utilization rate you mentioned). I do not see that in Fondia’s case, revenue growth would deviate from the general development of the industry in recent years. It hasn’t been a bed of roses elsewhere either. All business-to-business service-sector operations follow general economic development quite well, though an individual company’s development can of course deviate from it greatly.
The same faces can certainly do more work, but I feel that regarding retention and incentive-based pay, Fondia is structurally the underdog compared to expert organizations owned by their employees. Profit funds cannot be channeled toward key personnel compensation on the same scale without flagrantly jeopardizing the interests of other shareholders, and lawyers slaving away in employee positions cannot just brush off labor laws. In addition, the industry is as capital-light as can be—almost all added value arises from intangible things. In other words, all that you describe as the “deliciousness” and “attractiveness” of the industry is more or less diluted by operating in the form of a listed company. Furthermore, the risk of employees leaving for competitors (turnover in the industry is high) or one’s own managers founding a competing company is very real, and I don’t think there are easy answers to it.
Legora and other LLM-based tools have seen rapid adoption in the legal industry (a lawyer’s tool is language after all—in itself it is not at all surprising that language models are well-suited to the field) and are an incomparable help in various kinds of work. Much of that is precisely the auxiliary work that juniors would otherwise do (reviewing texts, rummaging through archives, translation work, etc.). However, that is not what is sold in the industry, but rather solutions to the client’s problems. The fact that digital tools help a lawyer in that work is no threat at all to the provision of the “LDaaS” service. Rather the contrary. However, LLM tools for the industry are quite expensive.
If juniors were no longer hired, where would the seniors come from later? Bright young people, after all, possess enormous potential, and with appropriate incentives and personal ambition, professional development can be truly rapid.
So I would say that Fondia’s ongoing legal advisory service is a quite decent product, but it will never achieve the same revenue-per-employee numbers as large law firms. (If all revenue comes from lawyers’ billings and there is a 1:1 ratio of support staff in both, anyone with basic math skills can quite easily deduce how much more or how much more expensive hours need to be billed for revenue per employee to double…)
However, when the market is saturated, for Fondia to grow it must either win competitors’ accounts or take on tasks that would previously have been handled by the client’s own personnel. The total market for legal services in Finland is just only so big, and without bloody competition (or some external change), Fondia cannot grow by orders of magnitude larger there. Therefore, if shareholders want growth, the logical path to pursue it is geographic expansion—it just hasn’t produced the desired results so far, and might never produce them.
In my opinion, Fondia’s management can be satisfied with a situation where they achieve a >10% operating profit margin and market-matching growth, with low customer churn and staff turnover.
For an investor in that situation, however, there is hardly anything on offer other than dividends.