Withers/Speechly merger: Why the tie-up talks unravelled
28 May 2013 | By Natalie Stanton
23 May 2013
28 June 2013
25 November 2013
2 September 2013
21 February 2014
A merged Withers and Speechly Bircham would have scaled The Lawyer’s UK 200 with a turnover of about £170m, and created one of the world’s largest specialist private client teams. So what went wrong?
It emerged last week that the proposed merger between Withers and Speechly Bircham had fallen through after partners voted against the scheme.
Sharing global ambitions and a focus on expanding their private client work internationally, it appeared to be a match made in heaven. So, where did it all go wrong?
Firstly, let’s look at the stats. Withers, having been founded in London, has grown into a 10-office international outfit, spread across Europe, Asia and the Caribbean. New partner hires and promotions over the past few months suggest that the firm has a strong focus on growing its international bases. Since January 2012 it made up three partners and hired five laterals in its overseas offices. It only made up one partner in the UK in the same period.
Private client and family work have always been hotspots for the firm. Last year they brought in more than half of its worldwide revenue (51 per cent). The firm said its contentious practice also performed well in London, contributing almost half of the office’s £62m turnover. Withers currently has over 700 employees worldwide, including over 100 partners. Just over half of its lawyers are based in the UK.
Withers was considerably further ahead than Speechly Bircham in its international investment. While all but a handful of its lawyers work in its City HQ, Speechly also has offices in Zurich and Luxembourg. The latter recently upscaled its offices in the financial services centre in a bid to bulk up its overseas practice. Plus, as news of the failed merger talks broke, managing partner
Michael Lingens announced the firm is to open its fourth office “in a major European location” this autumn.
Speechly’s business services practice (which includes corporate and finance work) accounted for about half of its overall revenue last year, while property and construction came in at 26 per cent, and private client at 24 per cent. The firm currently has over 200 lawyers, and some 77 partners.
Had the two outfits combined their private client and wealth management capabilities it would have created one of the world’s largest specialist private client teams - over a third of its revenue would have been secured by private client and family work.
So both firms were clearly moving in the same direction when it comes to growth. They also have a compatible practice area focus. So was it the financials that foiled the deal?
At first glance, it seems that Withers held all the cards. According to the firm’s LLP accounts, which include results for all its non-US offices, it had a turnover of £80.5m in 2011/12. That’s a rise of 6.4 per cent on the previous year.
Speechly, on the other hand, saw its revenue fall from £59.6m in 2010/11 to £57.6m in 2011/12. Lingens described the year as “disappointing”, putting the firm’s stalling performance down to being cut from the panel of its largest client RBS. The loss is thought to have cost Speechly about £2m in fee income. The managing partner said it was also a tough period for the firm’s commercial disputes work.
Withers certainly looked like the big hitter here, but the firm may not have been as securely in the driving seat as it initially seemed.
In terms of net profit, the firms are pretty much level-pegging - Withers LLP at £20.4m and Speechly at £20m. Broken down, this works out as £386,000 per equity partner at Withers, and £300,000 at Speechly. However, when it comes to cash Speechly is by far the flusher of the pair. In 2011/12, the firm had £37.1m stashed at the bank, as opposed to Withers’ relatively paltry £1.5m.
Then there is the creditors amounts falling due this year - Speechly owes £11.2m, while Withers LLP will have to fork out £27.7m. Speechly has slightly more to pay out in total over the next five years, but it is not a patch on Withers short-term debt. Withers’ net debt is also twice as high as Speechly’s, ringing in at £16.6m.
Had the two firms merged, Withers Speechly Bircham could have scaled the UK 200. With a turnover of about £170m, the new firm would have sat roughly on a par with Addleshaw Goddard which last year ranked at number 21 on The Lawyer’s scale with the same revenue.
Of course, these calculations exclude the contribution of Withers’ three US offices. The firm’s overall global turnover in 2011/12 was £113.3m, a rise of 12.4 per cent on the previous year. Perhaps its American offices could have stepped in to bolster its results, making the merger a genuinely viable option for Speechly.
While profits are important, any accountant will tell you that the key to a successful merger really lies in the people. How was the cultural fit between the two firms? Well, they certainly shared a few problems. Both had witnessed a flurry of partner departures since January 2012.
Evidence suggests both firms were undergoing considerable cultural turmoil, which would have further hindered attempts to execute a merger.
Withers has seen the exit of nine partners, including three UK heads of departments and two US regional practice group leaders. The London departures include head of European corporate Adam Duthie, head of media and public law Jennifer McDermott, and head of art and cultural assets Pierre Valentin. In the US, Stephen Liss of the international wealth planning group departed alongside Deidre O’Byrne of its family and business planning practice.
Four have been dropped from Withers’ membership, and replaced by the firm’s new international partners - these include tax planning specialist Patrick Cox and private client lawyer Mark Haranzo in New York, new head of international regulatory and corporate crime Gez Owen and private wealth
specialist Simon Michaels in Singapore and Matthew Feargrieve, an investment funds and asset management lawyer in Zurich. Rita Ku was made up in Hong Kong’s family team, Aaron Schumacher in income and estate planning in Geneva, Michael Parets in Zurich’s private wealth group and Tim George in tax, trusts and estates in London.
Speechly has fared no better over the same timespan. Twenty-three of its partners have opted to jump ship (six of which have retired) since January 2012, including four departmental heads. These include head of planning and environment Clare Prior, head of international private client Charles Gothard, head of immigration Tracy Evlogidis, and family head Christopher Butler. Andrew Pincott, director of business development, was the fifth member to leave the firm. Two were de-equitised during this period, while eleven new partners joined including Martin Lucas, former finance director at White & Case and new immigration head Rose Carey, who was previously at Squire Sanders.
They say a problem shared is a problem halved, but in this case a tie-up could have meant double trouble.
Both firms declined to comment.