LG may have lost its original lustre but this could still be a marriage of convenience
Some things are meant to be, and others just look better the second time around. And so it must be for Wragge & Co and Lawrence Graham (LG), which last week confirmed that they are in merger talks to create a £170m firm.
“Wragges is in a strong position, while LG’s property costs [the firm has a £5.1m annual rent bill] are killing them,” stresses one source. “It’s likely that Wragges has more scope of setting the terms this time around, therefore getting a far better deal than would have been discussed in 2009.”
A bit like spotting a coat you love in the sale, and nabbing it while the offer is on. Not a totally unfair comparison, given that partners on both sides have grown to know each other well. After an all-day bonding session between the two firms back in 2009, there was a consensus among partners that combining would create a “culturally good fit” but, according to insiders, Wragges eventually came to the decision that LG wasn’t quite the calibre they wanted.
“They’ve always been risk adverse,” adds one source. “But most partners have now known those at LG for some time. The challenge [if a tie-up goes ahead] will be how to retain the LG brand, because Wragges will want to feed off the name in London.”
Collegiality is certainly core to LG’s makeup and Wragges can offer a match for that but as one source said: “I would hate to be in the management of a 250-year-old firm that was about to disappear.” A cultural match won’t do much to soften that blow.
During the original merger talks, each firm’s partners gathered together at a large conference room in a London hotel. “It was like a speed dating event,” joked one source. The day involved afternoon presentations, with tables of eight – four from the LG side, four from the Wragges side – given different topics to talk to their peers about.
So having already gone through the prep, it looks like management are in a strong position to move
the relationship on. Wragges, however, will not take the deal forward if it does not have the full backing of its partners.
“Wragges will carry out a full partner vote and write a report
on it. There’ll have to be a lot of people voting yes to get this through,” says one source. “They’ve definitely canvassed people internally already.”
If the merger does go ahead, it is likely that LG partners will join Wragges’ equity ladder. “The equity serves to fit pretty neatly,” adds one insider. “But this is more likely to be a takeover than an acquisition, with Wragges acquiring LG’s net assets.”
One source close to LG says he was surprised to hear that the two firms were in talks to begin with but now feels that this could be a really good move for LG, which has been floundering for several years.
The obvious advantage is to instantly bulk up the London practice, which is not easy to do quickly in London. Bulking up with laterals would be slow progress; however, mergers are costly and disruptive so they have to pay off.
LG’s 2011/12 LLP accounts revealed property costs of £5.1m a year at its premium SE1 offices. In the same year turnover fell from £58m to £56m and operating profit before any payment to partners slumped 31 per cent from £20.7m in 2010/11 to £14.2m.
Things were looking no less bleak this year when LG announced a significant drop in profitability. Net profit dropped by 6.8 per cent and PEP slid by 14 per cent from £303,000 to £260,000. Revenue dropped 7.5 per cent from £56m to £51.8m.
The steady trickle of partner departures from LG is no less of an issue. Insurance partner Nick Bradley joined Pinsent Masons in July 2012, real estate partner Jane Fox-Edwards headed to Allen & Overy in April, pensions partner Ron Burgess turned up at Olswang in May, and corporate crime partner Eion O’Shea joined Reed Smith in July.
“We had a proud tradition but that becomes diluted by too many lateral hires; you lose the collegiality,” says one source reflecting on the revolving door culture that emerged at the firm a few years ago.
“The firm always intended to expand significantly, but it has shrunk. I don’t think it is at the desperate stage that some people are suggesting but there has been a decline and it’s time for action,” says another commentator.
Time for action it may be, but does this union offer a mutual benefit or simply dig LG out of a hole? Unless there is a competitive advantage to be gained by entering into a merger deal, it’s hard to see why Wragges would vote for it.