With constant merger talks and two empty floors in its building, Davenport Lyons can’t shake the appearance of a firm that is desperate to be bought. Here’s why.
Last month HowardKennedyFsi (HKFsi) called off merger talks with Davenport Lyons, weeks after the firm allegedly turned down a deal which “didn’t stack up financially” from Shakespeares – an offer which some have said remains on the cards.
At the time of writing Davenport Lyons, best known as a media specialist that regularly acts for Private Eye, was understood to be in talks with at least four other firms, one thought to be a US outfit hunting for a London launch. Is there a whiff of desperation in the air?
“The only genuine solution is critical mass,” admits CEO Richard Williams, who clears the air in his chat with The Lawyer early on by saying the firm is not – despite market speculation – on the verge of an administration. “That doesn’t have to mean a deal with another law firm, it could be other investments coming in.”
The difficulty, Williams continues, is that smaller firms such as Davenport Lyons, a West End media boutique, are now competing with the likes of Linklaters, Eversheds and BLP as they drop their rates and offer fixed-fees.
“Being a £20m-£22m law firm in this market isn’t going to work,” he stresses. So if the £21.9m firm can’t find someone to grow with, is it game over?
“The only reason we’d go into administration is if it was planned as part of a deal with a much larger firm,” he answers. ”There is no creditor, lender or landlord putting pressure on us.”
Wiliams is keen to stop the rumour mill, but he admits himself that there’s no smoke without fire. It’s been a tough slog since he took on the job 18 months ago – average profit per equity partner slipped by 12.5 per cent to £197,000 last year, a 20 per cent drop since 2011, while the firm closed its film and TV group in November.
“The problem is that we’re servicing debt instead of making a profit – that’s [the main reason] we’re looking at our long-term growth options,” Williams confirms. ”We have full support from the banks and are reducing short-term funding and managing working capital, making sure WIP is billed quickly.”
Fair enough, but the fact the firm appears to be in such a rush to merge or attract an investor – Williams said he hopes a decision will be made within the next few months – suggests there’s more urgency to all of this then he’s letting on.
“The reason there’s a timescale pressure to do something is because I want my staff to know what’s going on – they are my biggest asset,” he highlights.
There have been no further redundancies since the firm closed its film and TV group, he insists, and no pay cuts are on the cards.
With the firm’s seven-equity partners giving themselves months to find a solution, Shakespeares might get its Romeo – London – after all.