With Clydes crying out for competitors, insurance firms are in need of consolidation.
International firms tend to focus on major disputes that span jurisdictions and involve multibillion-pound claims. On the domestic front, defendant insurance firms will advise on corporate deals and disputes more often in a volume capacity. As the market begins to polarise, lawyers are finding the floor shifting beneath them as firms embed themselves deeper with their clients to maintain territory at both ends of the scale.
Other changes are happening too. Traditionally, firms would align themselves with Lloyd’s of London clients, known as subscription market, or the commoditised insurance sector, known as the non-subscription market.
As the London market prepares to relax rules on who can access Lloyd’s underwriters, non-subscription insurers are looking to broaden distribution channels. Consequently the lines between Lloyd’s and non-Lloyd’s insurance are becoming increasingly blurred. This has forced law firms to look again at where they position themselves, with some beefing up capabilities in an attempt to keep hold of fickle insurance clients.
Clyde & Co is a clear leader in the insurance sector. In the UK, Kennedys is emerging as a force to be reckoned with in defendant insurance law and is quietly creeping up on current frontrunner Barlow Lyde Gilbert (BLG) (see page 50). The firm showed limited growth in turnover, up 3.4 per cent from £49.8m to £51.5m at the 2007-08 year-end, which could be explained by its expansion into the regions.
Kennedys’ buyout of Davies Lavery in June shows the firm to be hungry for acquisitions. The takeover gave Kennedys an instant footing in Birmingham and Maidstone, as well as a larger base in Chelmsford. Hot on the heels of that deal came the takeover of Reynolds Porter Chamberlain’s Tiverton office as an ongoing concern, which will later be moved to Taunton.
Clyde & Co: International reach
Statistics
Rev: £157m – RPL: £321K
PEP: £550K – EPP: £393K
Clyde & Co has seen the biggest jump in insurance firm turnover in the past year – up 17 per cent from £130m to £157m. Profit margins have remained stable at 31 per cent for 2007-08, up one per cent on the previous year.
From a UK perspective, Clydes has all but sewn up the international market, dominating by spreading its office base into strong insurance centres.
An example of this can be seen in the firm’s decision to close its Los Angeles office and launch in San Francisco with a raid on US firm Duane Morris for a 10-lawyer litigation team in April. This was almost two years after Clydes opened in New York after poaching a four-partner team of aviation litigators from US firm Condon & Forsyth.
Clydes is striving to build a global practice and has put in place an international board to drive this growth. The firm is a keen acquirer of practice groups and is likely to build up specialist practices in aviation, marine and reinsurance by raiding niche teams.
This strategy is driven by expansion in the international insurance market, with Lloyd’s of London syndicates growing significantly and also diverging into niche areas.
Further mergers could be on the cards for Kennedys, but these will be some way off as the firm looks to bed in the Davies Lavery acquisition. While there are many teams that would be suitable for the firm, there is one fantasy deal that would set it apart from the competition – a reverse takeover of BLG.
The acquisition of Beachcroft’s insurance practice would create potential conflicts for Kennedys, particularly in the volume claims arena where client bases are likely to overlap. The same can be said of a deal with Reynolds Porter Chamberlain, which is still considering its options when it comes to growth.
BLG, on the other hand, could do with some innovative thinking to reignite its appetite for growth. A reverse takeover of by Kennedys would give BLG the vision it needs to further develop.
Kennedys’ outstanding quality is its management team, which has led the firm through significant growth. For four consecutive years, BLG’s profit per equity partner (PEP) figure has flatlined at £380,000.
Meanwhile, Kennedys’ PEP figure has remained static for the past two years at £300,000 as the partnership ploughed cash into the firm’s expansion. In 2005-06, PEP stood at £265,000 and its subsequent jump to £300,000 in
2006-07 showed Kennedys as a firm capable of offering partners a return on investments.
In figure terms alone both parties would benefit from a reverse takeover, but more importantly a deal would instill in BLG a strong management team with the depth of confidence to take calculated risks and push forward growth.
In terms of management BLG can be seen as conservative with a small ‘c’. The firm prefers evolution to revolution and growth tends to be organic rather than acquisitive.
It has suffered a string of high-profile exits in the past year, including its financial services regulatory chief Chris Warren Smith, who left to head the international financial services disputes practice at US firm Fulbright & Jaworski, and litigation head Clare Canning, who joined Mayer Brown.
In an effort to turn things around, BLG appointed its first non-lawyer chief executive in Clint Evans. Evans had previously been head of branding for Clifford Chance and was instrumental in turning accountancy firm BDO Stoy Hayward into a challenger to the ‘big four’.
However, other than rebranding the firm and promoting a record number of partners, BLG is yet to make any major leaps forward. Strong management is what is needed to persuade the BLG partnership to adopt a more radical approach, which will be crucial for the firm’s future survival. The firm’s lawyers, while highly regarded for their quality, are perceived as being staid in their outlook.
Evans would benefit from having the support of a management with visions for growth, which Kennedys senior partner Nick Thomas and chief executive Rick Martin can both offer.
Last year (17 September 2007) Evans told The Lawyer:“Looking forward,
I believe it’s important that there’s communication between different parts of BLG.”
The Kennedys management team has demonstrated its expertise in streamlining cultures with the acquisition of Davies Lavery. Trevor Davies, senior partner at Davies Lavery, said the firm had knocked back several offers to merge with Kennedys, primarily because it broke the firm into new international markets. He also commended Thomas’ leadership skills.
In return Davies Lavery gave Kennedys an established personal injury (PI) practice, which has given it access to the low-value volume work, the backbone of many insurance practices.
This could prove a stumbling block for any potential merger between BLG and Kennedys as the former prefers to concentrate on major disputes and persuading the partnership to accept a PI claimant practice could be tricky. However, there are pockets of the BLG partnership who are debating this sort of revolution, and if anybody could persuade the BLG partnership to expand it would be Thomas and Martin.
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