A persistent rumour has been doing the rounds for months now. It features the merger of a major Scottish firm and an English equivalent and it has dogged the legal market for months.
The rumour refuses to die and continued even after the deal between Irwin Mitchell and Golds this month appeared to lay it to rest. The Lawyer is generally not in the business of printing rumours, but in this case the retelling is worthwhile.
Eversheds and McGrigors, so goes the gossip, have been courting. The English firm is said to be keen to plug the gap marked ‘Scotland’ on its UK map, while McGrigors is looking for more weight in London, a confirmation of the southerly drift in the Scottish-headquartered firm’s centre of gravity.
The rumours are wrong. There is no deal between Eversheds and McGrigors – at least not yet. The two firms are not merging and are not in merger talks. In its capacity as the window on the legal market, The Lawyer is happy to set the record straight.
But that, of course, does not mean that the two firms have not considered a merger or have not got as far as early-stage talks in recent months – talks that, according to several well-placed sources, took place as recently as late last year.
“Eversheds are known to be on the lookout for a Scottish firm,” claims a senior partner at a major Scottish firm. “They’re looking for coverage, the same reason as DLA Piper, the same reason as Pinsent Masons.”
So although the question of an Eversheds-McGrigors deal now appears to be off the table, the drivers behind the firms’ exploratory talks remain.
It is easy to see why this particular rumour has legs. For Eversheds, expansion into Scotland makes a degree of sense. For a firm as wedded to national (and increasingly international) coverage as Eversheds, there is a big gap in the map north of the border – one, it is fair to say, that is being successfully filled by both DLA Piper and Pinsents.
“I’m sure they’ve approached every firm in Scotland,” says the managing partner of a mid-sized Scottish firm. “They have a good network in most other places. From a banking perspective it would make sense, as two of the UK’s major banks are headquartered in Scotland and many Scottish firms have excellent relationships with them.”
The problem with this analysis is that Eversheds already handles work for both Royal Bank of Scotland (RBS) and HBOS, thanks in part to its extensive referral network of firms. As a Scottish partner at a smaller Scottish firm puts it: “We do work with [Eversheds] and that’s the way they like it. Just because the gap in their coverage is so obvious doesn’t mean it’s true. Eversheds has good relations with lots of Scottish firms. What they have works well.”
Indeed, the list of firms with which Eversheds works reads like a convention of the Scottish Law Society: Biggart Baillie, Brodies, Burness, Dundas & Wilson, McClure Naismith, Morton Fraser… The firm would have to be very sure of its ground before it struck a deal that would shut off those referrals.
Alan Jenkins, Eversheds chairman and head of international development, puts the rumours into perspective. He says: “Have we looked at Scotland? Yes. But we decided that, although we’re not saying never, it’s a question of priorities. There are significant European countries in which we’re still not yet represented. It’s a question of devoting time and resource. Scotland at the moment is not at the top of our priorities.”
Jenkins concedes that Scotland is “an interesting market” with several “very significant clients” based there, including RBS, HBOS and Scottish & Newcastle.
“But they’re all doing a great deal of business south of the border and we have relationships with them and can attract and execute that business with the resources we have,” Jenkins adds. “I’ve talked to people in a number of firms, but it’s another thing to say we’ve been approached or are approaching [a firm] about a merger. We don’t see a formal relationship with a Scottish firm as a priority for us.”
For Eversheds, a far bigger priority is Central and Eastern Europe, which Jenkins says is “definitely the hottest area for us.”
So what about McGrigors? According to one well-known merger specialist, “the Scottish market is sick. There’s not enough high-value work in what is a shrinking market. All the big firms are looking to build out in London.” This would explain the firm’s desire for rapid growth.
McGrigors has made no secret about its ambition to grow its London office, which is already its largest. But sources close to the firm suggest that the pace of growth is far from satisfying for managing partner Colin Gray.
“Colin Gray is looking for a turnover above £100m to be taken seriously as competition to the larger firms,” says a partner at a Scottish firm. “That won’t happen organically.”
Up until now the £52.1m-turnover McGrigors has bolted on niche opportunities to the firm’s core drivers of energy, projects and finance, with last year’s Ledingham Chalmers deal being the most obvious example.
So, stylistically and strategically, a deal with the £323m-turnover Eversheds would represent a significant shift. Or, as a Scottish rival puts it: “McGrigors would’ve been swallowed.”
Colin Gray, McGrigors managing partner, is adamant that the rumours concerning his firm are nothing more than that. “McGrigors’ performance, both in terms of growth and client mix, would obviously make us an attractive partner for other firms, but we haven’t been in merger talks. The discussions with Eversheds were only ever about McGrigors taking on Scottish work by referral.”
But another source, this time a well-placed management consultant, says: “McGrigors have been trailing their coat around the market for six months looking for a deal. At least one lot of headhunters acting for a US client have offered McGrigors as an option.”
A string of exits from McGrigors’ London office points to one reason why the firm is looking to beef up in the City. Last month national IP/IT head Catrin Turner and her team of three associates, all based in the City, left to join Pinsents. The London office also lost banking and finance partner Stuart Brinkworth to SJ Berwin and barrister Jonathan Fisher QC to 23 Essex Street in the same month.
One leading recruitment consultant says: “McGrigors is already losing people in London and arguably it could become more difficult to retain what it has in London if it doesn’t grow. Do the losses on the English law side mean it is fragile in London?”A source close to the firm tells The Lawyer: “It’s been very common currency for the last 12 months that the firm was looking to grow by merging. It can be a bit like the Cold War at McGrigors sometimes, with information and disinformation flying around. So as to identifying Eversheds as the partner, it’s little more than second-hand hearsay. But I’m 100 per cent certain that the top brass is looking to merge with somebody.”
London is at the heart of McGrigors’ plans, that much seems certain. It still needs the credibility of additional resources if it is to be taken seriously in the City as opposed to its home market, where it remains one of the four magic circle firms. In London, though, the firm is pitting its practices up against the full-blown magic circle.
“If, for example, the matter is a dispute and something goes wrong,” points out one source, “the shareholders are very likely to say, ‘why did you go to McGrigors and not Allen & Overy?’. On that basis, a merger with Eversheds, or another substantial firm, seems to make perfect sense.”
Another source familiar with the firm says: “McGrigors don’t need 500 lawyers in London, but do need to be able to put together strong teams for major corporate and banking deals. Look at DLA Piper and Addleshaw Goddard. When they got to that level they began to be taken seriously in the City. At the moment McGrigors is nowhere in the context of London.”
A contention with which McGrigors’ Gray clearly disagrees. He says: “With regard to our current strategy, I did say to our partners a few months back that I wanted to see McGrigors at circa £100m turnover over the next few years, but the current strategy for getting there is through organic growth and strategic acquisition – for example, the Ledingham Chalmers deal last year. This strategy has seen the firm grow by around 50 per cent in the last two and a half years, which gives me every reason to be optimistic about the firm’s capability of getting to that £100m target over the next few years.”
And then there is its continuing and, as one source puts it, “curious” relationship with KPMG.
“In many respects McGrigors is still little more than the old KLegal reincarnated,” the source says. “Certain groups, particularly tax litigation, but also corporate, are almost entirely dependent on KPMG as a source of work. Tax litigation makes well over 50 per cent of its money from KPMG, while the corporate partners continually struggle to establish relationships with the clients referred to them for one-off deals. The regular solicitors are always there in the background.”
It is arguable, of course, that having that level of virtually guaranteed income from a source as dependable as KPMG is no bad thing, but there is such a thing as having too many eggs in one basket.
At least McGrigors appears to be taking a more diverse line in terms of looking for a merger partner. For Eversheds is not the only name it has been linked with recently. CMS Cameron McKenna, which recently had talks with Aberdeen-based Paull & Williamsons, Pinsents, itself already in Scotland but in a relatively minor way, and Addleshaws have all featured in the whirlwind of gossip surrounding McGrigors and its radical growth plans.
Addleshaws is thought to have talked with McGrigors early this year. The talks, according to sources, did not last long. “There is no deal on the table,” says the source. “There never was a deal on the table. But a deal with Eversheds? That still has a degree of credibility.”
But of course, that is only a rumour.