Focus: SJ Berwin - Steady as she goes
20 June 2011
19 November 2013
28 October 2013
27 January 2014
18 March 2014
28 October 2013
SJ Berwin chief Rob Day has put the US firmly back on the agenda
It is as though Rob Day is looking to write his own headline. As he stares out of the window of SJ Berwin’s 10 Queen Street Place offices, admiring the boats as they sail under Southwark Bridge, his PR asks rhetorically whether his boss might be giving away a longstanding interest in matters maritime (Day is a lifelong sailing fanatic). “I think you’ve found a metaphor,” he chips in.
So let’s play along with the imagery. Day has steered the frail SJ Berwin ship since being elected managing partner last October, and is at the helm of a firm that has encountered no shortage of turbulence along its course.
Until the latest financial year annual figures were not quite dreadful, but certainly less than desirable. Turnover dropped by 7 per cent, from £184m in 2009-10 to £171m, a figure that was itself down 14 per cent on the previous year’s. Average profit per equity partner (PEP) underwent a more drastic slide, falling from just over £800,000 in 2007-08 to £410,000 in 2008-09. It nudged up to £447,000 the following year.
The poor profit figures are touted as the reason drawn-out talks with US firm Proskauer Rose fell through in November last year. In the time that SJ Berwin’s PEP fluctuated, Proskauer’s lingered around or just below the $1.5m (£930,000) mark.
But last month SJ Berwin announced remarkably improved results, with PEP up 40 per cent to £626,000 and turnover rising by 5 per cent. On the surface famine had turned into feast, with SJ Berwin suddenly looking like the firm everyone should want to be a partner of.
The truth is different, evidenced not least by the fact that rival firms are said to be keeping a close eye on the firm, waiting to pounce on anyone keen to get out. Day himself admits that private equity funds - traditionally one of the firm’s strongest suits - have seen a subdued period that took longer to recover from than the downturn in corporate dealflow.
But quite in what way the figures cloud reality is another matter. On the one hand SJ Berwin has been in such dire straits in previous years that any ’normal’ set of results would look like a massive upturn.
But perhaps the bounce hides a different trend: the unsustainable financial success of the boom years made the downturn that followed look atrocious.
“I think if you go back further, the success was misleading. The firm wasn’t doing badly two years ago, but was doing surprisingly well two years before that,” says one source close to the firm.
How the firm managed to improve its per-partner results should not be difficult to work out. It has lost a string of partners to rivals in the past year, and Day is open about the fact that the firm embarked on a cost-cutting mission.
“When life was different you were seeing year-on-year increases in income and increases in costs,” he says. “What you see is an increase in income and profit margins.
“I don’t think a 5 per cent increase in income will deliver a 40 per cent increase in PEP every year. It simply wouldn’t. The question is an increase in income without an increase in costs.”
In other words, what bolstered the firm’s PEP was not an increase in income but a programme of savings. Despite being cagey about where cuts were made, Day is candid in accepting that things needed to change.
“When we went into the recession it was a difficult period - we had something like 20 per cent capital growth year-on-year for three years, so it was doubling in size every three years,” Day recalls, adding that going from a period of growth to a totally different environment required “painful adjustments”.
Cutting costs and increasing margins was SJ Berwin’s mantra, and it is clear that the firm had to take a good look at how many lawyers it had and cut numbers.
“Our total profit pool increased by about £10m; £8m of that came from slight fee income growth. Others came from sale of space and cost reduction,” he says. “In part that’s about looking at headcount and revenue per lawyer and making sure you’ve got the right balance.”
In addition to several high-profile partner departures, including the loss of real estate head Jon Vivian to Irwin Mitchell together with three partners last September, the firm has reduced lawyer numbers across the firm, including within the lowest ranks.
“It’s been at all levels. [We take on] slightly fewer trainees. The firm’s a smaller firm than it was three years ago at partner, associate and support staff levels,” Day reveals.
In the past year the firm has lost corporate partner Tandeep Minhas to Taylor Wessing, outsourcing head David Meredith to Reynolds Porter Chamberlain and real estate litigation head Michael Metliss to Berwin Leighton Paisner. Competition partner Niamh Grogan also left, joining Lloyds Banking Group.
Meanwhile, in Germany, it was stripped of Alexander Rinne, head of the EU and competition team in Munich, who defected to Milbank, as well as funds partner Achim Pütz to Dechert.
“A lot of partners have left. This makes it easier to put PEP up,” admits an SJ Berwin source.
The firm also traditionally has a small equity partnership compared with the rest of the partnership, leading to speculation about further de-equitisations. Around a third of partners are part of the equity.
There were other measures, too: the firm sublet some of its office space to Goodwin Procter, which moved into the building in 2009.
“We’ve done most things that were sensible,” Day insists. “We have a few fewer people than we had back in 2008. We’ve sublet some of the space.”
But Day is sceptical of schemes to farm work out as a way of reducing costs further. “We’re not going down the outsourcing route yet. We’re not opposed or averse to considering outsourcing. We’re wary of whether it actually delivers what people say it does.”
Day’s plans to revamp the firm were made difficult right from the start thanks to the nature by which he was elected last October. He trailed rival candidate Perry Yam after the first round of voting, but recovered to win tightly in a turnaround that prompted accusations of excessive pressure on partners to ditch their allegiance to Yam and the third candidate Hilton Mervis, who withdrew after the initial round.
The process itself was gruelling, the politics even more so. “The managing partner election was a good process for everybody - bar the candidates,” Day jokes. “It was a great process. It was the first contested election the firm ever held.
“Some people changed their votes, clearly. You can’t ever quite work out what’s going on. I never saw this as a political campaign.”
Day says he is still on good term with Yam, but the shenanigans smacked of an internal rift. The entire London tax team and most of the real estate team supported Yam, a stance seen at the time as a protest against the perceived secrecy of talks over
a merger with Proskauer, which collapsed in November.
It is a split that does not seem to have gone away, even post-Proskauer.
“There’s no real corporate management at SJ Berwin,” says one firm source. “The firm sits on a foundation of being a collection of strong practices, but it’s very much that. SJ Berwin’s very much a firm where there are numerous micro-practices. It’s not a sufficiently joined-up style.”
Quite how Day will be able to implement a strategy of any sort without the firm behind him is the obvious question coming from this. He aims to strengthen core areas such as corporate, finance and real estate and develop the contentious arm, although he stresses that this is unlikely to involve further lateral hires yet following the recruitment of Dubai arbitration partner Mark Hoyle from Al Tamimi & Company in February.
Pulling up the anchor
The firm plans to expand into Asia and the Middle East and review its alliances with foreign firms - it is also not ruling out a US merger.
Some see such an international expansion as a flawed policy that would do little but give partners the feeling of being in a large firm. They see little point in making a profitable business bigger, especially if the firm handles a lot of jurisdiction-specific work.
That was not the way the firm saw it, however, when it entered into talks with Proskauer last spring. Proskauer was one of a small number of US firms SJ Berwin had referral relationships with, the others being Goodwin Procter and Cooley Godward Kronish (now Cooley), all of which are understood to have been at least on the radar as potential merger partners. The Proskauer negotiations were broken off in November, with the difference in profits between the two firms proving to be the key factor bringing the deal down. Day also blames the let-down on the talks becoming public at an early stage.
“The rhythm and the timing of the transaction didn’t work well for us. You need to have time to talk before it’s in the public domain,” he says. “If it’s all in the public domain any break in proceedings is filled by a million rumours. People are constantly asking things. It’s incredibly difficult when these things come into the public domain.”
The talks also came about in a period of economic uncertainty. Even during the time when the talks were taking place Europe was suffering a bout of economic turmoil, with eyes focused on Spain and Greece. It was also a time when SJ Berwin itself was practically in need of a bailout.
“The timing wasn’t perfect. We were doing it at a time when we were going into a recovery or rebound year,” recounts Day. “It’s interesting how the world’s changed. Look at the things that have occurred since [last May]. It was a very difficult economic environment.
“If you take an environment where there are two very democratic partnerships, which we both were, and lawyers are by nature risk-averse and are trained to find problems, and the economic environment was very difficult, it doesn’t take a lot to see why it didn’t work out.”
The collapse was seen as being hugely damaging to a firm that had just spent a good six months achieving nothing. Yet given that the disparity in profits was the core reason for the deal falling through, the sudden bounce in PEP begs the question of whether the firm is bracing itself for another attempt at a US merger. For Day, it is a distinct plan that has been on the table at partner meetings, even if it is not imminent. He receives frequent showings of interest from firms stateside, which he describes as “very flattering”.
“We still think the direction of travel of law as a whole is towards strong multinational businesses. Joining strength in Europe with strength in the US makes sense,” stresses Day. “Accessing the US is a merger-only option.
“The Proskauer discussions concluded in November. Since then we’ve had a great set of results. The environment feels different. Our feeling is that we still need a period of stabilisation. We’d like to [merge with a US firm], but we’re not going to go straight back into it.
“Proskauer showed us that to implement one of these transactions you need to be very focused and have a very good match.”
The partnership is understood to be undecided and split on any deal, even if it ultimately found the Proskauer collapse a massive disappointment. Partners fear becoming second-class citizens and surplus to requirements. The threat of de-equitisation looms too.
“Some couldn’t be arsed because it would make no difference to their business,” says one source.
For partners whose practices will benefit less from a US tie-up, though, perhaps it is a risk too far.