The magic circle has its reputation, the regional players lower fees. What can the London mid-market draw on in these tough times? asks Luke McLeod-Roberts
Over the past few financial crisis-dominated months, expensive lawyers in the magic and silver circles have regularly defended the sustainability of their fee arrangements on the grounds that when things are going badly, jittery clients will embark on a flight to quality.
At the same time the cream of the regional and national firms have argued that lower overheads means they can outdo their City counterparts on fees in areas such as projects and energy.
If that is the case, where does that leave the London mid-market? Charging City rates but without the same skill-base, resources or kudos to act on the highest profile restructuring and insolvency mandates, they are being squeezed at both ends.
Look at the results for Charles Russell, LG, Nabarro, Olswang and Taylor Wessing. It is clear it is has been a universally tough year. With the exception of Taylor Wessing, which grew by 2 per cent, turnover is down between 2 and 11 per cent across the group. All have suffered drops in profit, with equity partners taking home on average between 19 and 40 per cent less than in 2007-08.
It is no secret that redundancies have been widespread in this market. And with corporate accounting for a sizeable chunk of their practices, they have all been vulnerable to London’s reliance on financial services and the impact on practices that service it, such as employment.
Ups and downs
However, Nabarro managing partner Nicky Paradise contends that far from seeing clients trickle away either up or down the food chain, “hard work” means her firm has brought in some important clients in the last year, including winning places on the United Biscuits and Mercedes-Benz panels.
LG has also celebrated successes, with a re-appointment by Legal & General and a new mandate from Liverpool Victoria. The feeling among London mid-market managing partners is that their firms have been no more disadvantaged than their rivals since the downturn hit.
But it is hardly time to crack open the champagne. Profit margins fell significantly at all five of the leading firms last year. At Charles Russell, where the volume claimant insurance business has a much lower margin than the rest of the firm, profit margin dropped from 24 per cent to a worryingly low 15 per cent.
At Nabarro, an upturn in projects and litigation was not enough to offset the fall in transactional activity, which accounts for the majority of the business.
Some of the firms feel they need to take action to reverse this trend. “We’re looking to grow,” confirms LG managing partner Hugh Maule. “In the market we’re in, in London, turnover growth and having a greater critical mass is important to be able to compete.”
In their favour, all of this group benefit from strong brands in one or more relatively counter-cyclical area. Taylor Wessing has IP and private capital, LG private capital, Olswang media and IP, Nabarro projects and litigation and Charles Russell employment and family. As a result, firms like these are often eyed closely by larger, acquisitive counterparts keen to bulk up in specific areas.
“I’m not going to hide the fact that people may view us as a tasty morsel, and maybe we are,” says Maule, before adding, “consolidation happens across our client base, there’s no reason why it shouldn’t happen in the legal sector, but firms like to retain their independence.”
So if a merger is not at the top of the to-do list, then what does Maule propose to give LG a much-needed leg-up? He points to a focus on particular areas, such as healthcare, that have become increasingly important recently, alongside a concentration on “key geographies” such as Dubai, Moscow, India and the US.
For his part, Taylor Wessing managing partner Tim Eyles says he was elected on the basis of making lateral hires. “We’d be happy to speak to any partner who feels they’re an over-performer in an under-performing firm in any of our key sectors,” he admits. Eyles identifies those ‘key sectors’ as being IP, private wealth, real estate, finance, environment, construction and corporate.