Hammonds’ Italian practice has delivered an ultimatum to UK management to slash costs and improve profits or face a final split.
Hammonds secured its merger with Turin’s Rossotto in 2002, subject to a three-year ‘transitionary period’, which ended last Friday (29 April). The merger agreement allowed the firms to integrate or split at this point. However, a gulf between profits in Italy and the UK has prompted Ricardo Rossotto, managing partner of Hammonds Ross-otto, to delay full integration.
The practices are now negotiating a further two-year probation, during which time Hammonds’ profits must rise to equal Rossotto’s. In return, the Italian partners will consent to a two-year lock-in.
The Italian operation has a profit margin of around 50 per cent, while according to The Lawyer UK 100 Annual Report, the UK arm of Hammonds is just 19 per cent. It is understood that Rossotto is demanding Hammonds brings its profit margin closer to the 25-30 per cent mark.
For the past three years, Rossotto has been allowed to exercise a considerable degree of latitude in remunerating its partners, even though the Italian arm is formally part of the firm’s lockstep.
The firm’s Italian operation has long outstripped the rest of Hammonds in profit terms.
With the profit drop for this financial year predicted at 25 per cent, Hammonds’ UK equity spread could be as low as £90,000-£225,000, with average profit per partner below £200,000.
Hammonds’ international board is now working with Turin consultancy A&G as well as Hammonds’ new acc-ountants Pricewaterhouse-Coopers to formulate a new remuneration model for Italy.
Ricardo Rossotto told The Lawyer: “We strongly believe in the reorganisation plan and hope to achieve the goal of full integration eventually.”
Peter Crossley, Hammonds managing partner, said: “We are in negotiations with our Italian colleagues, which we hope to conclude in the next few weeks. We believe, and we’re confident, that we’ll be able to conclude an arrangement which is acceptable.”
