Dial 'm' for merger

Words beginning with the letter 'm' have been taxing the legal profession recently. And mergers and moves by leading legal players to multidisciplinary practices have been hitting the headlines in the legal press.

On the merger front, Eversheds has continued its growth and stayed in the number two position after its recent merger with niche London shipping firm Waltons & Morse.

The merger of City firm Nabarro Nathanson with another City firm, Turner Kenneth Brown, in May 1995, has given the new firm a place just outside the top 10, while the merger of Leeds-based Simpson Curtis and Birmingham's Pinsent & Co has put Pinsent Curtis into the top 20.

In the regions, Sheffield firm Irwin Mitchell's merger with Kershaw Tudor has added 80 fee earners to take the firm to just outside the top 20; and the Thompson brothers' recent merger has also taken the firm up to 200 fee earners. Other mergers include Nicholson Graham & Jones with Brecher & Co and Withers with Mackenzie Mills.

But a merger does not necessarily increase the potential for business. As Eversheds national managing partner Peter Cole warns: “It can also double the problems.” Of those who responded to the Top 100 survey question on whether their firms had either approached or been approached by another firm with a view to merger, 33 per cent had been approached by at least one firm, usually a smaller one. And the most common reason for the discussions going no further was the perceived incompatibility with the firm in question, rather than the concept of merging itself.

Cole adds that although merging can seem the ideal solution, “it is not necessarily always the answer – two and two has to make five. Critical mass is important but is not everything.”

For the majority of firms in the Top 100, it is organic growth that has resulted in an increase of, on average, 10 per cent, in fee earner numbers. This includes, in the 'Big Six', City firm Clifford Chance which has taken on 78 fee earners, and Linklaters & Paines and Freshfields which have both increased by over 50 fee earners. The jockeying for position in the premier league continues with Allen & Overy's 11 per cent increase to take it to fifth position, above Lovell White Durrant, and Simmons & Simmons dislodging Slaughter and May to take seventh.

But it is not just the largest firms which are expanding – the niche practices with a commercial core have also been growing. These include Mishcon De Reya, Ashurst Morris Crisp, Wragge & Co, Bond Pearce, Addleshaw Sons & Latham, Dickinson Dees and Browne Jacobson. All have experienced above average growth.

As Cole says, the consensus seems to be: “There is no way back for medium-sized firms who have to develop the core commercial work to survive.”

For most of the firms, recruitment has been made across the board. Linklaters' managing partner Terence Kyle comments that the bulk of the growth for his firm has been in the London office and overseas, and primarily in the area of corporate projects, finance and M&As as well as all areas of practice generally. But he says that the firm is “looking to keep growth under reasonable control – there is no sense in expanding just for the sake of it”.

The legal market remains in a state of flux, and with the gap between the larger firms becoming less distinct, most of them are looking to widen their work and client-base out of just one jurisdiction.

Both Kyle and Clifford Chance's managing partner Geoffrey Howe see continental Europe as a particular growth area for the law firms with overseas offices, as well as the continuing growth in Asia.

Howe considers that “there is untapped potential for a firm which can provide a truly international service”. In Europe in particular, he says, the strategy has been to expand by putting sufficient quality people in place for a quality service, otherwise the perception will be that there is not the quality and quantity of resources.

And competition from outside the UK legal profession is also growing. With Pinsent Curtis and Hammond Suddards losing partners to Price Waterhouse's network of European law firms, as well as Theodore Goddard partner Robin Preston joining Coopers & Lybrand to look at developing its legal side, the legal profession is keeping an eye on what is happening with the accountancy Big Six. Arthur Andersen and Ernst & Young have already made moves in the area.

Pinsents senior partner Julian Tonks is “philosophical” about the proposed move by London managing partner Paul Downing, and feels that multidisciplinary practices may be an inevitable move for certain firms. “It is a disconcerting fact that other accountancy firms may enter that market – where one accountancy firm has made a move, they all tend to follow.”

Linklaters' Kyle agrees: “Clearly, accountancy firms are serious about building a substantive law practice. If the rest are following Arthur Andersen and Garrett & Comodel, they must think there is a realistic outlet for them.”

Other managing partners say that “the jury is still out as regards multidisciplinary practices – some clients may want it, but does the marketplace?”

Another area where law firms are taking a leaf from the accountants' ledger is in the area of incorporation, after the ADT v Binder Hamlyn case. With Dibb Lupton Broomhead reported to be in discussion with KPMG on the feasibility of incorporation, other firms have added the issue of incorporation to their agendas.

The legal profession is increasingly mirroring the accountancy profession, even in the increasing number of professional indemnity claims against law firms. That trend seems to be following the one in the US, with the risk of more and larger claims to come.

Many partners consider that the market has found its level, although pressure on fees will remain. But clients may not always be able to judge the trade-off between cost and quality. As Kyle says: “It is not just a matter of pounds and pence.”

Inevitably, everything, from mergers to accountancy competition, comes down to that ubiquitous 'm' word – money.