State of the unions

Losing track of who’s merged with whom in the UK legal market? Our handy guide to the key tie-ups of the past 18 months will help

It was a long time prophesied, but until the past couple of years the much-heralded period of rapid consolidation in the UK legal market had shown little sign of arriving.

Last year that all changed. With deals such as the takeover of Barlow Lyde & Gilbert by Clyde & Co, the Beachcroft and Davies Arnold Cooper merger, and DWF kick-starting its plundering of the insurance sector with its November takeover of Newcastle firm Crutes, the merger-frenzy had arrived.

Many factors including the economy, the Legal Services Act (LSA) and more demanding clients have conspired to create the busiest time for mergers in most people’s memories.

Panel pains

“The sheer pain of having to stay on panels means that if you’re a smaller firm the disproportionate amount of time it takes can be ruinous,” says one merger specialist.

“You can see this most clearly in the insurance sector. If you’re a larger firm, pitches are proportionately easier to manage as you have the platform in place. This will get worse as there is more ‘panelisation’. When the market’s growing there’s more opportunity for a firm to get off-panel work, but when it’s contracting you tend to get more interference from central procurement.”

The upshot for the market is rampant consolidation. Indeed, even for the legal market anoraks at The Lawyer it can be hard to remember precisely who has merged – or is merging – with whom.

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Consequently, as 2012 nears its end we have produced an essential guide to the past year or so’s top deals. Keep it handy and never again will you confuse your DACs with your DWFs.

To put this article in context, since 1 January this year there have been at least 12 mergers or bolt-ons announced or completed featuring firms with 20 lawyers or more in the UK alone. Add on six months of 2011, which takes you back to the period last summer when merger season really got into gear, and the total of big deals rises to 17.

Match points

But in a declining market not all deals are going to be winners. Which is why The Lawyer’s guide to the key UK mergers also includes an analysis of each deal, its key components and its chances of being a success.

In a nutshell, these deals are either strategic winners or defensive plays aimed at keeping firms alive. Check out our marks out of five to see which way we think the wind is blowing.

Pinsent Masons/McGrigors

Date/status of merger: 1 May 2012

Post-merger turnover/position in UK 200: £295m/13th

New name: Pinsent Masons

Five point rating:

Vision 4/5

Financials 3/5

Cultural fit 2/5

Pinsent Masons’ takeover of McGrigors on 1 May – and there can be no doubt now that it was a takeover – is the biggest domestic combination of 2012 so far, creating the UK’s 13th largest firm, with revenue of £295m.

In Scotland, the tie-up forced rival managing partners to revise their strategies: a plethora of mergers followed in its wake. The response in England and Wales was more muted. Some competitors failed to see the addition of McGrigors as a threat to their businesses, while others were simply baffled why a firm would want to acquire such a big presence in Scotland, a place where firms’ struggles were said to be even greater than those of their English counterparts.

In the run-up to the takeover, factions of partners at Pinsents insisted that the firm needed to grow abroad – which, in fairness, it has since the merger, opening in France and Germany and expanding in China – but not in Scotland.

Yet, five months in, the talk surrounding the takeover is largely positive. At the very least Pinsents has added scale and removed a competitor, and McGrigors has a recognisable brand. But, more than that, sources say the firms complement each other. Pinsents is more corporate while McGrigors is more entrepreneurial. Pinsents has more corporate and banking clients, but McGrigors’ Aberdeen oil and gas practice, which spun out of Ledingham Chalmers in 2006, is a boon for Pinsents at a time when energy transactions and disputes are numerous and lucrative.

Nor has there been a mass exodus of partners. A construction team in Manchester left for Eversheds because of conflicts and a handful of departures bear the hallmarks of post-merger disaffection, but so far there is nothing on a grand scale. Even the decision to deny some 20 McGrigors partners equity at the merged firm has provoked little rumbling, with the Scottish firm’s partners seemingly accepting it as a consequence of tying up with a more profitable firm: Pinsents’ average PEP was £400,000, while McGrigors’ was £255,000.

This might be a product of Pinsents being so well-practised at tie-ups (the firm was a product of four mergers already) but while its takeover of McGrigors may not make big waves, it already looks like a modest success.

Clyde & Co/Barlow Lyde & Gilbert

Date/status of merger: 1 November 2011

Post-merger turnover/position in UK 200: £287m/13th

New name: Clyde & Co

Five point rating:

Vision 4/5

Financials 3/5

Cultural fit 3/5

Post-merger it is Clyde & Co’s DNA that is most prominent after its tie-up last year with Barlow Lyde & Gilbert (BLG).

Peter Hasson
Peter Hasson

Chief executive Peter Hasson continues to drive Clydes’ impressive international growth and leads a management board of five elected members that meets at least once a month.

The dynamic between Clydes old boys Hasson and Michael Payton, and the BLG side (David Jabbari and Simon Konsta) is an interesting one. Former rivals coming together to fight for a common cause is a bit of a fairytale, but will there be a happy ending? Initial signs say yes.

The deal boiled down to a rescue of BLG and an opportunity for Clydes to take a rival out of the market. It will be interesting to see how many more departures there will be, following the seven-partner Hong Kong walk-out last April, particularly when any post-merger lock-in agreements have lapsed.

Financially, the merger obviously did wonders for Clydes’ top line, with turnover up by 36 per cent to £287m for 2011/12. Taking into account the costs associated with the merger and a slight dilution of average PEP, (last year £550,000), this continued financial stability justifies the tie-up.

David Jabarri
David Jabarri

Where the Clydes-BLG merger excels is in geography. It was pitched as a perfect fit, with BLG’s UK spread and Clydes’ international presence linked by the commonality of the insurance industry. Overlaps in jurisdictions such as Brazil, Hong Kong, Shanghai and Singapore are being smoothed out.

The size of the new-look firm has enabled it to build on its global profile since the merger, with associations in Australia, Zimbabwe and Mongolia. This rapid growth has led to overseas income representing more than 40 per cent of turnover. This shows no sign of slowing post-merger.

As a blueprint for a major domestic merger, firms could do worse than follow this example. Even the suggestion of a culture clash seems unlikely to cause any stumbles in the firm’s forward march.

Field Fisher Waterhouse/Osborne Clarke

Date/status of merger: Talks in progress

Post-merger turnover/position in UK 200: £200m/19th

New name: Unknown

Five point rating:

Vision 4/5

Financials 3/5

Cultural fit 3/5

Field Fisher Waterhouse (FFW) and Osborne Clarke’s proposed merger is still at the talking stage, but for two firms known for being decisive the chances are they are steamrolling towards a deal.

But the cultural mesh of these two City firms seems out of kilter. Osborne Clarke is a gentlemanly firm with solid management in the form of managing partner Simon Beswick and a partnership that is generally behind him.

Matthew Lohn
Matthew Lohn

FFW, on the other hand, is seen as a much messier firm, with factions such as that in IP/IT associated with influential practice head Mark Abell, and in the regulatory practice where Matthew Lohn has earned more power since his appointment as managing partner last year.

A merger would most likely mean a takeover by Osborne Clarke of the strongest elements of FFW – its TMT practice being the most obvious – incorporating it under its own banner and within its structure. FFW’s culture is thought to be too toxic for Osborne Clarke to get particularly cosy with its City rival.

For one thing, FFW has had recent contested elections (Lohn beat Michael Chissick to the managing partner role), a partnership agreement that bans Abell from standing for the top job and a history of internal arguments.

The saving grace, which could just rescue the merger as a viable option, is FFW’s serious attempts to modernise in the past year, although received wisdom is that moving a business forward in leaps rather than gradual steps is an almost impossible task.

FFW axed its system of numerous types of partner including full equity, fixed-share and salaried in May, in favour of just the former two. It also underwent a major constitutional review in 2011 that resulted in the abolition of the senior partner role and the introduction of a supervisory board. The latter means nobody can now say the management was making decisions unchecked.

It has also made some credible international expansion moves, most notably following Osborne Clarke’s lead a decade ago by launching a base in Palo Alto.

But FFW looks to have done a poorer job of integrating lateral partner hires than Osborne Clarke. Plus, the latter firm knows exactly why it wants a merger – it wants to play with the big corporate boys – while FFW’s reasons are less clear, other than gaining a large London office.

The differences could be key. As one headhunter comments: “Will it hold them back? Will it be a nightmare to hold them together? Possibly.”

Beachcroft/Davies Arnold Cooper

Date/status of merger: November 2011

Post-merger turnover/position in UK 200: £163.2m/22nd

New name: DAC Beachcroft

Five point rating:

Vision 4/5

Financials 3/5

Cultural fit 3/5

It is almost a year to the day since Beachcroft merged with Davies Arnold Cooper (DAC), but full cultural integration is still some way off, despite the firms clearly complementing each other.

The reasoning behind this tie-up was logical. Both firms had core insurance client bases, both had seen their profit margins pushed downwards and both had seen client demand for a broader range of services offered on an international basis.

For Beachcroft, DAC offered a route into the lucrative Lloyd’s of London market and the basis for international expansion. For DAC, Beachcroft meant broadening its base beyond the specialist insurance market, while gaining a regional network of offices and a leading healthcare practice.

A year on and there has been investment in the commoditised arm, which had traditionally belonged to Beachcroft, while former DAC partners Danny Gowan and Paulino Farjado have taken charge of international expansion, resulting in the association with Canadian firm McCague Borlack earlier this year.

Here are the bald facts: the firm’s partnership figures have increased by 7 per cent in the past year, from 225 to 240, despite the exit of 10 partners over the same period. Included in this is the firm’s March acquisition of Scottish firm Andersons Solicitors, which went live on 3 September.

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There has been equal investment in the commoditised claims solutions business and the global practice. Still, there is a sense that there remains work to be done in terms of being able to leverage both ends of DAC Beachcroft’s service offering.

Domestically, the firms’ offices only overlapped in London and Manchester. Earlier this year the London base was consolidated from four to two, with the combined insurance practice moving to the heart of the insurance market in Minster Court in the City, while the remaining practices now sit in legacy Beachcroft’s Fetter Lane offices.

Before the merger, both firms regularly came up against each other in insurance circles. Culturally they were similar. The challenge now is to extend that culture across a growing international network while staying strong in non-insurance practices.

DWF/Biggart Baillie/(also Crutes and Buller Jeffries)

Date/status of merger: 1 July 2012

Post-merger turnover/position in UK 200: £120m/24th

New name: DWF (DWF Biggart Baillie in Scotland)

Five point rating:

Vision 5/5

Financials 3/5

Cultural fit 3/5

All of a sudden, DWF has become a major player, at least in insurance industry circles. Much of the credit for that can be laid at the door of managing partner Andrew Leaitherland, who is nothing if not a man with a vision.

Over the past three years Leaitherland has helped DWF move from a £71.5m firm ranked at 42 in The Lawyer’s UK 200 to one with revenues topping £100m (£102m), putting it in 34th place. Average profits have kept pace too, growing from £333,000 to £412,000 in the same period.

That said, while a Scottish merger may be zeitgeisty in 2012, a takeover of Biggart Baillie is hardly likely to transform DWF into a world-beater.

“A lot of people outside the insurance sector or Manchester still haven’t heard of DWF, and it has nothing much to speak of in London yet,” says one market specialist. “But it will do more [mergers].”

Certainly, the past year’s record suggests this prediction is accurate. DWF merged with Biggart Baillie in July 2012, £5m-plus Newcastle firm Crutes in November 2011 and Birmingham insurance outfit Buller Jeffries in April this year. And it shows no sign of being done yet.

The market’s perception that DWF needs to work on broadening its offering is unlikely to have been missed by the man at the helm. With Leaitherland steering the ship, DWF’s chances of success look strong nationally and, in time, internationally.

Bond Pearce/ Dickinson Dees

Date/status of merger: Talks in progress

Post-merger turnover/position in UK 200: £98m/36th

New name: Unknown

Five point marking:

Vision 4/5

Financials 5/5

Cultural fit 3/5

According to The Lawyer’s UK 200 data at least, Bond Pearce and Dickinson Dees have been dancing around each other for years within the mid-table.

Equally startling are the similarities between the firms’ key datapoints including average PEP (both £235,000 last year), turnover (both just above £46m) and the size of both the partnerships and equity partnerships.

Neatly then, the firms’ geographical coverage mirrors rather than replicates – a fact that makes it tempting to see the pair’s potential marriage as one made in merger heaven. But then, it’s not always good to give in to temptation.

“Which clients are going to be excited because suddenly there’s a firm in the market that can handle their needs in Newcastle and Plymouth?” asks one London legal market specialist. “Where’s London? For a merger of this size to mean anything it has to be in London. I don’t get it.”

The merger looks good on paper thanks to the surprisingly similar metrics, but the truth is that this is another that falls squarely into the defensive category. It was an open secret at Bond Pearce that it was looking for a deal, while growth at Dickinson Dees had stalled significantly in recent years.

Both have relatively tight equity partnerships and arguably, by being larger, the merger will not only reinforce some key practice areas but also allow the current crop of equity partners the latitude to keep average profits higher.

It will also make the merged firm more attractive to a bigger suitor, which may be the longer-term game plan. A work in progress.

Slater & Gordon/Russell Jones & Walker

Date/status of merger: 30 April 2012

Post-merger turnover/position in UK 200: £53.8m/50th

New name: Russell Jones & Walker part of Slater & Gordon Lawyers

Five point marking:

Vision 5/5

Financials 3/5

Cultural fit 4/5

In January listed firm Slater & Gordon shook the market when it announced to the Australian stock exchange that it was acquiring its first UK law firm, Russell Jones & Walker (RJW).

In the UK the announcement made waves. Internally, many of RJW’s own partners were unaware that the high-level talks had been taking place, while externally many believed Irwin Mitchell would be the country’s first

listed firm. Instead, here was a firm that had traditionally kept quiet about its financials and structure at last putting itself in the limelight.

Cath Evans
Cath Evans

It was never going to be easy to bring these firms together under a single banner given the geographical distance between them and the 12-hour time difference. Nevertheless, the firms are not dissimilar in their make-up – both are in the claimant market and both have trade union client bases for starters.

When the merger was formally approved, 60 Slater & Gordon lawyers put together a video welcoming their UK counterparts. When lawyers and management from RJW visit the Slater & Gordon offices they are encouraged to take away a present, and the same applies in reverse. It is little things like this that help bond a team.

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At the same time, on a more practical level, the two firms are attempting to streamline internal systems while making sure titles and ranks in the UK mean the same as in Australia. Partners, for example, are no longer ‘partners’ but ‘LLP members’.

Some best-practice features in the UK have been exported to Australia, for example the firm’s efforts on LGBT issues that have earned it a Stonewall accreditation are now being embedded in Slater & Gordon. Equally, Slater & Gordon has a strong learning and development ethos, and its HR head Cath Evans has moved to the UK to ensure, among other things, that this is bedded into the UK culture.

So far so good.

There are still some issues to be sorted out however, such as the brand. In the long term RJW will become Slater & Gordon, but RJW is mindful of its client base and will not drop its brand easily. It seems Slater & Gordon is appreciative of this and has not piled the pressure on, yet. If RJW fails to hit the £53m turnover target set by management this year, that might change.

Shakespeares/ Harvey Ingram

Date/status of merger: 1 September 2012

Post-merger turnover/position in UK 200: £50m/54th

New name: Shakespeares (Harvey Ingram Shakespeares in Leicester for one year, Wood Glaister in Solihull until April 2013)

Five point marking:

Vision 4/5

Financials 4/5

Cultural fit 4/5

“Knowing Paul Wilson, it will be a success,” is how one former Shakespeares’ employee sums up the feeling in the market about the Harvey Ingram merger, which went live on 1 October.

Paul Wilson
Paul Wilson

Wilson is seen as a force of nature, driving the amalgamation of the two Midlands firms towards the next acquisition and beyond. The Shakespeares chief executive was frank about redundancies when the merger was announced. Fifty-four jobs will go – 41 back-office staff and 13 lawyers – where there are overlaps.

If that ruffled feathers at Harvey Ingram, the turbulence is yet to show. Both firms had previously set out strategies to be part of a £50m firm by 2015, taking into account the LSA’s encouragement of larger and more efficient firms. They are well on their way to achieving that, with a further merger likely in 2013.

Broadly, there is a good geographic fit, with Harvey Ingram’s strong presence in Leicester (where it will continue to trade as Harvey Ingram Shakespeares for at least 12 months) and Milton Keynes complementing Shakespeares’ existing Birmingham and Nottingham bases, a £22m east and £26m west hub across the Midlands.

This balance of power is reflected in the leadership teams, with Wilson, operations director Ian Smit and HR director Simon Mennell based in the east, and finance director Fran Gibbons, commercial director Hamish Munro and former Harvey Ingram managing partner Simon Astill – now risk director – based in the west.

The executive-led model, with the equity partners running the legal teams and the non-lawyers running the operational side, is a legacy of Shakespeares, as Harvey Ingram was managed by lawyers. Both firms also operated merit-based remuneration systems, a further integrational plus.

A handful of partners chose not to join the merger, but with the firm moving away from legal aid, not a lot can be read into the departure of criminal lawyer Praveen Saigal – former chairman of Harvey Ingram legacy firm Borneos – and a team of 13 to establish PS Law.

Smaller offices in Bedford, Shipston-on-Stour and Moreton-in-Marsh were closed following a strategic review, streamlining the merged firm’s portfolio. The combined firm’s annual real estate costs were around £4.2m for 2011/12.

What is left is seven offices that, through a combination of luck and skill, have short leases expiring in the next two to three years, giving the new-look management structure some tricky decisions to make on size, flexibility and positioning. But, as always with Shakespeares and Wilson, opportunities too.

Freeth Cartwright/Henmans (also Kimbell)

Date/status of merger: 1 February 2013

Post-merger turnover/position in UK 200: £50m/54th

New name: Freeth Cartwright (Henmans renamed Henmans Freeth)

Five point marking:

Vision 3/5

Financials 3/5

Cultural fit 2/5

“It looks like Henmans has been eaten alive,” says one City recruiter of the news that Freeth Cartwright and Henmans are in merger talks.

On the face of it, the recruiter is right. Twenty-one partner Henmans is a minnow compared with Freeth Cartwright, a national 91-partner commercial and private client heavyweight (at least in comparison). Pre-merger, Henmans’ turnover was £8.8m, with a profit of £1.4m. The latter’s last year was £36.7m with £8m profit.

According to an internal memo seen by The Lawyer, the tie-up was intended to gift Freeth Cartwright, which has been on a growth spurt since the introduction of the LSA, “greater depth and range of resource”, “economies of scale” and the “critical mass […] to compete for larger clients on a wider stage”.

Henmans, meanwhile, posted a comment on its website saying the tie-up would enable the firm, which specialises in charities, private client, agriculture and insurance, to expand its client base across the country.

But not everyone sees the merger as mutually beneficial.

“I don’t see a natural fit,” says one external source. “If I was a posh Henmans client I’d quite like the fact I was dealing with an intimate Oxford firm. It’s been independent for years and is not one that I thought would merge with a national firm. Freeth Cartwright will achieve its goal of increasing turnover, but it feels a bit like it’s just hoovering things up.”

It is understood that two partners from Henmans will be on Freeth Cartwright’s management board until the deal goes live in February, with one Freeth Cartwright partner on the Henmans management board. It is not known how management will work after February.

Elsewhere, Freeth Cartwright also merged with Milton Keynes outfit Kimbell in November 2011, a bolt-on that contributed five months of revenue towards the 2011/12 figure of £36.7m.

Howard Kennedy/Finers Stephens Innocent

Date/status of merger: By end of 2012

Post-merger turnover/position in UK 200: £45m/62nd

New name: Howard Kennedy FSI

Five point marking:

Vision 3/5

Financials 4/5

Cultural fit 3/5

Mark Dembovsky
Mark Dembovsky

Given Howard Kennedy CEO Mark Dembovsky’s reputation as a merger-fixer it was always likely after he joined the firm in January 2011 that a deal would be on the cards. Cue August 2012, when Howard Kennedy announced it was tying the knot with fellow West End outfit Finers Stephens Innocent (FSI) on 1 November (earlier this month Dembovsky confirmed this deadline would be missed, but a 2012 deal still looks likely).

On the face of it, although Howard Kennedy is the larger of the two, the proportionate and actual numbers of equity partners are similar. Both firms are tightly run, with Howard Kennedy having 13 equity partners out of its 67 total partners compared with FSI’s 10 of 57.

The revenue per fee-earner (RPFE) and revenue per partner (RPP) are not so different either, with Howard Kennedy clocking up £207,000 RPFE and £487,000 RPP last year, while FSI’s RPFE was £225,000 and RPP was £502,000.

While Howard Kennedy’s turnover dropped by 6 per cent from £29.5m to £27.8m in 2011/12, FSI generated a considerably smaller turnover, posting a total revenue of £17.6m last year. The firm’s combined revenue is set to reach £45m, which would push it into the top 60 next year.

Although its larger turnover and size suggests Howard Kennedy will be the dominant partner in the relationship, the practice area fit suggests things will be more equal: private client, retail, capital trust, funds and real estate are among the areas set to benefit. Other more niche areas, such as FSI’s corporate crime division and contentious media practice, are tipped to prosper from exposure to a broader client base.

When it comes to the partnership itself, the picture might not be quite so rosy. Howard Kennedy is widely known to have had partnership disunity demons, notably an equity bottleneck, raising the question of whether the partners in the new firm will get along.

“One of [Howard Kennedy’s] main problems has been significant turnover at salaried partner level and you wonder whether being larger will make the situation more stable,” remarks a source.

Dembovsky will head the merged firm as chief executive, while FSI’s managing partner Paul Millett will become one of seven partners on an integration committee for 12 months. FSI corporate head Ashley Reeback and Howard Kennedy litigation head Craig Emden will also stay in his current role leading the combined department.

Both firms already operate an entirely merit-based partnership and are now LLPs, with Howard Kennedy’s conversion in 2010/11 being emblematic of the cultural change that Dembovsky has tried to instil in the firm to make things more transparent.

Burness/Paull & Williamsons

Date/status of merger: 1 December 2012

Post-merger turnover/position in UK 200: £37.6m/68th

New name: Burness Paull & Williamsons

Five point marking:

Vision 4/5

Financials 3/5

Cultural fit 4/5

Scotland has been a hotbed of merger activity in the past year, though not all deals have made obvious strategic sense. That cannot be said of Burness’s tie-up with Aberdeen firm Paull & Williamsons, due to go live in December.

Burness operates the highest profit margin of the Glasgow and Edinburgh firms while Paull & Williamsons commands a large chunk of the Aberdeen oil and gas market. Geographically, the deal is a good fit: although Paull & Williamsons has a small Edinburgh presence it is known primarily as a Granite City player, while Burness has not until now ventured outside the Central Belt.

Practice-wise, too, the tie-up makes sense. The Aberdeen firm has particular expertise in the energy, oil and gas, shipping and offshore project finance sectors, and a client list that includes BP, Shell, Maersk and Talisman. Notable partners include Bruce McLeod who, before joining the firm in 2003, spent eight years in both legal and commercial roles at BP. Burness’s largest practice group is property, but the firm is also known for its strength in litigation, with chairman Philip Rodney seen as a particularly strong partner in that group.

Financially, the firms are less well aligned, although not unmanageably so. In the 2011/12 financial year Burness turned over £24.3m and posted an average PEP figure of £368,000. As the most profitable of the Scotland-only firms, Burness’s profit margin for the year was 42 per cent.

While Paull & Williamsons did not provide comparable figures, its PEP is understood to be considerably lower than Burness’ and is estimated to be around £250,000. That said, the firm’s LLP accounts reveal that in 2010/11 Paull & Williamsons’ highest paid partner received a profit share of £356,000.

Management of the combined firm will rest largely with R