Dundas and CMS partners agree two-year lock-in as merger terms take shape

Dundas & Wilson and CMS Cameron McKenna partners have agreed a two-year partner lock-in period as a condition of their proposed £277m merger this year, The Lawyer understands.

The lock-in was agreed as part of a “high-level” package put together by the firms’ management, which guaranteed co-managing partner Caryn Penley a seat on CMS’ 15-strong board. 

All partners in both firms are believed to have been locked in for two years with an income guarantee based on average earnings over a set period.

The terms were put in place ahead of the 12 December merger vote (12 December 2013).

The guaranteed income level may be aimed at placating Dundas partners who could receive a decreased chunk of equity when they join CMS, sources said. Dundas was previously an all-equity partnership but moved to a two-tier structure in 2011 (17 October 2011).

It is understood that all Dundas partners will join the first two tiers of CMS’ recently overhauled structure. In April CMS shook up the partnership model, allowing junior partners to progress faster through the lockstep, which runs from 28 points to a 70-point plateau (12 April 2012).

Dundas partners are understood to have been made aware of their individual pay packets and obligations via email, but, according to sources close to the firm, many had still not seen the full terms and conditions until last month.

A source said: “They hadn’t seen the deal a few weeks ago, been told what they would get paid and where they would be in the system and that was it.”

The firm has kept the details of the merger under wraps since its inception, telling partners about the deal only one week before the vote.

The merger will see all of Dundas’ practice groups will align under CMS’ six practice group heads, with each CMS head remaining the same. The combined firm will add an opposite number in Scotland to each area.

That would put CMS corporate head Andrew Sheach opposite Dundas corporate chief Wendy Colquhoun, and CMS’ banking partner Rita Lowe opposite financial services head Philip Mackay at Dundas.

But it raises questions over Iain Lindsey, Dundas’ head of real estate who is based in London, where CMS’ real estate group is headed by Mark Heighton.

A source said: “One of the attractions for CMS will be coming in and subsuming Dundas & Wilson within the CMS structure. This is such a merger of unequals. I wouldn’t expect Dundas & Wilson to have had much of a hand at the table.” 

The two firms are now engaged in a flurry of meetings aimed at hammering out the next stages of the process, including how the groups will join together. Dundas’ current tax and government public sector groups do not currently fit neatly into CMS’ practice groups, leaving question marks over the roles of tax partner Jim Hillian and public sector partner Michael McAuley.

On 6 January CMS managing partner Duncan Weston and senior partner elect Penelope Warne travelled to Edinburgh to the Dundas office with the firm’s six practice group leaders.

That included Lowe and energy, projects and construction head Stephen Millar, who led the merger deal with Warne.

It was followed by a well-attended 7 January meeting organised in a single day at CMS’ London base, which all Dundas’ London office was invited to.

The London office is the focus of much speculation as it is seen as the biggest area of overlap for the two firms. The real estate team is thought to be valued by CMS and clients like National Grid add extra weight to CMS’ existing panel relationship with the company.

But a further source commented: “CMS will be far more interested in the clients than the people.”

Another said: “There are also issues about overlap clients – who will take the benefit of that because CMS will argue they’ve already got the relationship.”

Lloyds Banking Group could be one such client, historically important to Dundas due to its HBOS links and a real estate client of the firm in London, as well as a client of CMS led by partner Will Meredith.

Some partners have already voted with their feet. Former CMS real estate disputes partner left Dundas following the announcement as well as five other partners (8 January 2013). Construction partner Siobhan McCloskey-Oudahar left with employment partner David Walker. They were joined by environment, health and safety chief Mark Brumwell and employment partner Mandy Laurie as well as former Bank of Scotland partner Allan Wardhaugh have also quit.

Their departures follow that of former chairman David Hardie (7 January 2014) who retired from the partnership at the end of 2013, six months after he was succeeded by Laurence Ward as chairman.

Dundas and CMS declined to comment.