Avoiding a Brum steer

Aspirant law firms in England's South West have been flocking to Birmingham in recent years, but the increasingly crowded market means expansionist South West firms now need to look elsewhere for growth opportunities.

The Bristol legal market is a hostile one for firms seeking either to launch or to expand their presences there, with its top tier dominated by Osborne Clarke and Burges Salmon and squeezed by TLT Solicitors. The next level down is a fierce battleground between the likes of Ashfords, Beachcroft, Bevan Brittan, Bond Pearce and Clarke Willmott.

The question, then, is just where should South West firms be seeking to focus their expansion energies outside the region? Market conditions have changed in the two nearest commercial centres, London and Birmingham, making these options less obvious than they once were.

In the capital the ever-escalating cost of office space has coincided with a pay war among City practices. Short of a significant downturn in property and a stagnation in remuneration, partners at the South West head office will have to be certain that an expensive gamble with expensive lawyers in expensive offices will pay off - and quickly.

In Birmingham, meanwhile, the flood of new firms into the mid-tier during the past five years has made that city an off-limits area for all but the most confident and long term-ist of new legal investors.

Bristol firms Bevan Brittan and Beachcroft, both longstanding players in the Birmingham mid-tier, have already demonstrated their intentions for major growth there. Combined with the likes of Browne Jacobson, Harvey Ingram, Mills & Reeve and Shoosmiths joining the crowd in recent years, along with more competition on the way from Freeth Cartwright and the newly merged Shakespeares and Putsmans, Birmingham is hardly more conducive to expansion than is Bristol itself.

The shift is one that has not escaped the attention of John Workman, senior partner at 77-lawyer BPE Solicitors, which is headquartered in Cheltenham, halfway between Bristol and Birmingham.

Workman says the firm chose Birmingham over Bristol as the site of its second permanent office five years ago without hesitation because he thought the smaller city "felt overlawyered".

"Burges Salmon, Osborne Clarke and TLT dominate the Bristol market, so why would we have wanted to go there?" he explains.

Instead the firm chose Birmingham, but Workman admits that, from his vantage point, "the question of whether we'd launch a new office there now is a very interesting one".

Illustrating Workman's point, it is instructive to note the experience of Clarke Willmott, which is the only Bristol-based firm to launch in Birmingham before it became quite as crowded as it is now. The firm moved into the city in April 2006.

Since that time Clarke Willmott has fallen victim to a string of damaging raids by Osborne Clarke that have stripped it of much of the local strength it had acquired, and the costs of investment in the Midlands meant average profit per equity partner (PEP) at the end of the 2006-07 financial year had risen by just 3 per cent to £260,000 from £252,000 the year before.

Client demand
"For South West firms generally it's hard to make a choice between Birmingham, London, Manchester or even Newcastle," says David Worskett, commercial development director at Bevan Brittan, which has offices in Bristol, Birmingham and London. "Our own decisions about where to relocate were driven by important clients and by the markets our specialisms are in: if we were in markets that required us to have an office in Timbuktu, then we'd have opened one out there."

Bevan Brittan's client base has for many years been split 50-50 between public and private sector work, making Birmingham and London obvious choices at the time of opening offices there. Like Clarke Willmott more recently, the firm's decision to move to Birmingham in April 2001 was made in large part to take advantage of the city's booming real estate development market. As Worskett observes: "If you want work in real estate it's a no-brainer that you have to have people who understand the geography."

Also appealing were the opportunities in the public sector. "For the public sector, proximity is still important," Worskett explains. "And there are major local authorities in the midlands. After all, these are local authorities - it's not like working for a company that does business across the UK."

The firm's base in the capital was opened in May 1998, when real estate prices were sufficiently low to allow smaller firms a more stately expansion. Its reasons included the added clout a London office gave the firm when dealing with central government departments in Westminster. However, Worskett agrees that the difficulty in moving to London now is the spiralling salaries of the City's lawyers as much as the high cost of office space.

"People are well paid in Bristol and Birmingham, but not as well paid as those in London. And the difference is growing," he warns.

Yet, paradoxically, for all its disincentives, London does have at least one advantage over other cities: its relative accessibility. While large firms might reasonably expect they would be better placed to grab market share in the regions than in Europe's number one financial centre, the reverse is often true.

"Many of the English regional capitals are very difficult to break into," agrees Worskett. "They have strong local networks of their own and regional loyalties, and it's not as easy to find your place as an outsider as it can be in London."

Guy Stobart, managing partner at Burges Salmon, agrees. "Birmingham is a fiercely independent marketplace and very proud of its heritage and local connections," he says. "London is in some ways easier to break into, because people aren't as bothered about your antecedents."

However, unlike Worskett, Stobart argues that, unless there is a specific and significant incentive to do so, such as one of its top 10 clients relocating there, South West firms would be unwise to open anywhere else but the City.

"The further away your offices are, the harder the integration is," he says. "To use a military term, it's a question of having overstretched supply lines. And why would you want to travel a long way and have extended supply lines where the pickings aren't as rich?"

The need to expand
So with London too expensive, Birmingham and Bristol too crowded, and with other cities simply too far, is it even worth South West firms branching out at all?Foot Anstey Solicitors, which has offices in the West Country towns of Taunton, Exeter and Plymouth, and which recently swallowed Plymouth firm Serpell Eaton (see page 5 of this issue), thinks not.

"We want our focus to be on the South West region, but we don't have plans to open an office in Bristol," says managing partner Jane Lister. "Our USP [unique selling point] is as a South West firm, and while we could tap in to centres of excellence by opening offices outside the region, it would inevitably mean that the South West became a periphery, and that's not what we want for our clients."

Yet few firms without Foot Anstey's portfolio of private client, charity, family and legal aid work will be able to sustain themselves on the Taunton, Exeter and Plymouth markets for long. Bristol-based TLT chose to open its second office in London in 2005 via a merger with banking specialist Lawrence Jones. TLT managing partner David Pester argues that for any law firm there is "only a finite amount of work in any area, and so expansion might make sense".

As well as providing new and larger markets to sell services to, major cities also serve as new recruitment pools, offering aspiring firms the talent that is essential to further growth. As the UK's largest city, London also offers a superior recruitment market due simply to the sheer number of law firms and solicitors already there.

"We were trying to grow our specialist advisory lines into the banking sector, so we had to find some more experts in that area. And we felt London was the place to find them," says Pester.

"The legal recruitment market gets more and more difficult, and if you're trying to find the best staff it makes sense to be able to look in two places," agrees Bevan Brittan's Worskett.

London calling
London clearly holds no fears for another expansionist South West firm, Thring Townsend. Last month (30 July) The Lawyer exclusively revealed that the firm was entering the London market via a merger with private client boutique Lee & Pembertons Solicitors. Thring Townsend managing partner Thomas Sheppard said his firm's strategy of having a balanced private client and commercial practice would benefit from the tie-up and from being in London.

Burges Salmon's Stobart goes further. The capital, he concludes, is the obvious choice "unless you're a complete wimp".

"If you just look at the gross domestic product in London and the percentage of [UK] legal spend, the difference [between that and Birmingham] is massive," says Stobart. "If you're saying you have something to offer then you head to London. There's so much more to achieve there."

However, the question of where next is best answered by the question, 'where are the clients?'. Any move should be made on the basis of existing clients, not just speculation about new ones.

"London is far and away the number one, two and three options in my view, but there has to be a reason to go there; it's not just a case of wanting to have a London address on your notepaper," Stobart agrees. "Each firm has got to do the maths and work out what makes sense for them, but anybody going into any marketplace has got to be certain of what the workstream is, or else ask itself