Are Pinsents’ consolidation plans going to score it an own goal?
When a group of senior partners leave a market-leading practice for a firm with little standing in their area of expertise, eyebrows are inevitably raised.
It is understood that four Pinsent Masons construction partners – Gordon Bell, Peter Cassidy, Keith Hartley and Vincent Rowan – could be about to do just that. Bell runs Pinsents’ international arbitration practice, while Cassidy is perhaps the most senior of the group, having been a partner for around 20 years. They are tipped to be joining Reed Smith imminently.
Most of the group specialise in contentious construction with a particular focus on international projects. At Reed Smith they will enhance significantly a practice that has just two London-based construction partners – Richard Ceeney, who was made up last year and who did his articles at DJ Freeman before a spell at Linklaters, and Lynne Freeman, formerly of Stephenson Harwood and Hammonds, who has been a partner since 2003.
A source tells The Lawyer that what clinched the Reed Smith deal for the Pinsents four was not just the money, but “the network of offices, the [higher] profitability and the fact that it is a truly merged firm”.
In terms of the firms’ respective office networks, Pinsents and Reed Smith overlap in the Asia-Pacific and Middle East regions, where all of these partners have traditionally been most active. Reed Smith also has the US and Continental Europe, although that may not be as relevant for the practices of these individuals.
And there is probably some truth to the assertion concerning greater profitability. Sullivan & Cromwell it ain’t, but with an average global profit per equity partner (PEP) for 2009 standing at $998,000 (£648,000), Reed Smith is undisputedly more profitable than Pinsents, where equity partners took home an average of £310,000 last year.
Equity partners at Pinsents have recently been overtaken by those at other national firms of varying sizes and profiles, from Addleshaw Goddard to Osborne Clarke. It is expected that these four will have been offered a financial sweetener that may include guaranteed packages in the first year of the deal.
Having been admitted to the roll between 1982 and 1990, like much of the construction practice they are legacy Masons partners. As a group they are all rated highly by colleagues at rival firms.
A former partner at construction boutique Shadbolt & Co, which was taken over by Clyde & Co at the beginning of this year, comments: “They’re very strong, they’re market leaders.”
One source estimates that as a group they bring in £6m per year, which if true means on an individual basis they each generate twice Pinsents’ average revenue per partner, which stands at £760,000.
Reed Smith’s gain would be Pinsents’ loss, according to another source. “They control four of the most successful practices. The management of the firm doesn’t understand how pre-eminent that practice has been,” says the source.
As with many other national firms, Pinsents is the sum of several tie-ups, the 2004 merger between Pinsent Curtis Biddle and Masons being the most germane, as it gifted Pinsents a top-notch construction team. The binding delivered good financial results during the boom years, undergirded by strong domestic reputations in real estate and projects. At the end of the 2005-06 financial year the firm’s PEP leapt by 70 per cent, up from £234,000 to £400,000. Turnover was also up, rising 15 per cent to £172m.
But much of the international profile in Asia and the Middle East has been linked to the Masons construction department. The firm gained a foothold in Dubai, before many competitors arrived, for example, precisely through Masons’ construction reputation. It is an historic ability to punch above its weight that has endeared the construction practice to much larger outfits. One observer says that its reputation is such that even lawyers at the traditionally discerning Herbert Smith are among its admirers.
However, in common with other firms operating in similar markets, the recession has hit Pinsents hard and provoked some soul-searching. Just as Addleshaws and Eversheds have already done, Pinsents is poised to relocate into new City headquarters, which is partly about establishing its flag in the ground in London.
Pinsents wants to be bigger, but last year shelved a possible merger with Salans for cost reasons (The Lawyer, 27 July 2009), opting instead for a tie-up that sees the two firms operate on joint pitches.
However, there is a feeling that the firm still eyes a merger as the ultimate end goal, with emphasis on growing its standing in corporate and finance, and this may be to the detriment of traditional core practices.
A source confirms: “I don’t think the firm recognises the seminal strength [of the construction practice]. The firm’s dominated by non-Masons lawyers who think construction is a dirty word. Management wants to merge the firm at all costs.”
No one from Pinsents responded to repeated requests from The Lawyer to comment for this article. If their departure terms are negotiated smoothly (and there is some suggestion that Pinsents could make it difficult for the partners to leave promptly) their exits will follow soon after two insurance partners left for Sidley Austin, including insurance head Martin Membery (TheLawyer.com, 12 March). However, it would be unfair to say that Pinsents’ partners have all been going in one direction – the firm recently took Halliwells ex-head of real estate Mike Edge to run its Manchester real estate department.
It is thought that the construction experts were speaking to a number of outfits, from international to regional players. For Reed Smith, picking up this group will constitute a major coup. Their loss to Pinsents, though, may be a response to a major change of direction – and not necessarily one for the better.