Dundee-headquartered Thorntons is on a mission to become the premier firm in the east of Scotland and has just sealed a double merger in Fife to help it on its way.
The addition of St Andrews-based Murray Donald and Cupar’s Steel Eldridge Stewart (9 June 2014), which will add £4m to Thorntons’ 2013/14 turnover of £16m, may sound to some like small beer, but with the Scottish market going through rapid change the deal could prove significant.
For co-managing partners Scott Milne and Craig Nicol it is all part of a wider strategic plan that could see the firm bulk up in Edinburgh and leverage off its fund management business to gain a foothold in the Aberdeen market.
“When Scott and I became managing partners two-and-a-half years ago we embarked on a five-year strategy,” says Nicol. “That involved looking at the creation of five key areas for growth in the business – private client, investment services, personal injury, land and rural business, and IP and technology.”
As part of that, being in Fife made sense because the region has a large land and rural business community, and Murray Donald, itself the product of the 2005 merger of Murray Donald & Caithness and Drummond Cook & Mackintosh, was a good fit seeing as 50 per cent of its turnover comes from private client. Steel Eldridge Stewart, though far smaller with turnover of less than £1m, ticked the agriculture box.
While the deals won’t yet send Thorntons flying up The Lawyer’s UK 200, they will give it a bit more clout in the small Scottish marketplace. To put it in context, the UK market as a whole has gone through massive change in the past five years, but the names at the very top of the UK 200 remain the same.
Not so in Scotland, where former leaders McGrigors and Dundas & Wilson have been eliminated thanks to takeovers by Pinsent Masons (19 January 2012) and CMS (12 December 2013) respectively. Add in the entry of the likes of DWF and Berrymans Lace Mawer via the acquisition of smaller niche practices, and the demise of firms such as Semple Fraser, and the Scottish market is a very different beast to what it was five years ago.
Though the addition of £4m seems trifling in the UK context, it elevates Thorntons within the Scottish mid-market to the level of Harper Macleod, which it views as among its main competitors.
One area where it is going head to head with Harper Macleod is the education sector, where Thorntons has begun competing at a national rather than simply local level.
“Eighteen months ago we tendered for and came out top in Scotland in the [Advanced Procurement for Universities and Colleges], where we were appointed top in three out of five categories” says Nicol. “That’s seen us win some very significant new work. We won the mandate for Strathclyde University. We’ve been working in the education sector for 25-30 years and been strong in that locally, but thought that nationally we should be breaking out of our east of Scotland geography.”
It is hardly surprising, then, that the firm would want to bulk up in Scotland’s capital and also take advantage of Aberdeen’s recession-proof oil economy.
Milne says that currently the firm only has 17 members of staff in Edinburgh, but adds, “there are certain areas of the firm that we’re keen to grow there and there are certain individuals in the newly merged firm who are keen to go there to grow their business”.
Nicol adds that Aberdeen is of interest, although reveals, “we don’t see ourselves competing in the oil and gas sector with those who already have a very strong foothold in Aberdeen”.
Rather, the firm, which has a separate fund management business that turns over around £2m, would focus on the lucrative private client business that has grown up around the oil services sector.
Whether any of this will happen soon is another matter.
“It’s taken us a long time to get into Fife,” says Milne. “We looked at it for a long time and thought it would be ideal but we waited for the right opportunity to come along.”
In the meantime, with the Steel Eldridge Stewart deal due to go live on 1 September and the Murray Donald one on 1 November, the challenge for Thorntons will be to translate top-line growth into an increased bottom-line too.
If it really wants to take on Harper Macleod this will be essential: in 2012/13, the most recent year for which figures are available, Harper Macleod had a profit margin of 36 per cent while Thorntons operates on a margin of just under 20 per cent, giving respective average profit per equity partner figures of £296,000 and £118,000.