Reasonable clout: why Dundas needs Bircham
26 September 2011 | By James Swift
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It was fast becoming one of the worst-kept secrets in the legal market. For months rumours had been circulating that Scottish heavyweight Dundas & Wilson and Westminster firm Bircham Dyson Bell were in merger talks, yet both sides continued to be economical with the truth, repeatedly dismissing the stories as nonsense.
It was not until after The Lawyer broke the news (20 September) that an email had been sent to the Dundas partners confirming talks and outlining the benefits of a merger ahead of a partner vote that the two parties issued a joint statement, acknowledging at last that a merger was on the cards.
The statement, signed by Dundas managing partner Donald Shaw and his Bircham counterpart Guy Vincent, read: “As both firms have previously confirmed separately, we’re committed to developing our businesses, and each party has been considering various options, including combining forces with firms who could help us to achieve that aim.
“Given our positive mutual experience of collaboration to date, we can confirm that discussions between Dundas & Wilson and Bircham Dyson Bell have taken place as to whether we might combine forces more formally. At this stage we’ve reached no conclusions, so it’s very much business as usual for both firms.”
Beyond that statement both sides are refusing to comment and have once more ducked below the parapet. Reports have surfaced that voting has already taken place, but a source close to the parties says that polling the partnerships is more likely to take place on 1 October, with the ambition, if approved, of going live with the tie-up on 1 January 2012.
Bircham and Dundas are not an obvious match, but the proposed merger chimes with talk of pressure on mid-tier firms to consolidate in light of an increasingly hostile legal market, exacerbated by a faltering economy.
For a long time market watchers have predicted that fee constraints and the lack of organic growth opportunities would force smaller national and regional firms to merge, but so far there has been little evidence of this.
“I think the potential merger between Bircham and Dundas is a sign of the increasing consolidation,” says one Scotland-based lawyer. “But any merger, to be successful, needs to have a strong strategic basis and that basis isn’t immediately obvious in this situation.”
That is not to say there is no overlap between the firms: Bircham and Dundas both have strong parliamentary advice practices and have worked together on projects related to that field.
Separately the firms undertake a fair amount of project work and are both on the National Grid’s property and planning panel. Also, it is understood that Dundas has used Bircham for commercial work in London when it was conflicted or lacked capacity.
In short, the firms know and are comfortable with one another, but beyond that there appears to be little synergy. One commentator says that the pairing looks like it is just a way for Dundas “to buy revenue” in London.
“I think there are parts of Bircham that Dundas finds interesting, but the former plays more in the mid-market and my guess is that a Dundas merger doesn’t fit,” comments another source familiar with the two firms. “From a strategic viewpoint, Bircham’s a nice firm that’s got some practices that would be interesting to Dundas, but it’s not wholly consistent with what Dundas looks to be trying to do. And you have to ask, if it’s not a core fit what’s the point?”
The point for Dundas, Scotland’s second-largest firm by turnover after McGrigors, is that, while it is a top player with a strong brand in its home jurisdiction, in London it is a minnow. The firm needs to bulk up if it is to be taken seriously and win new clients in the capital.
Bircham, meanwhile, fits the profile of the kind of firm that has been squeezed by the effects of the downturn.
“I don’t think Bircham’s struggling, but it’s in the third tier of the London market,” says a source familiar with the firm. “Firms above it are taking work from it and life’s getting tougher. If you have a good firm with scale it will be able to outperform a similarly good firm that doesn’t have scale. If you’re going to remain competitive in London you need to be bigger.”
Fit and proper
It is understood that Bircham was not Dundas’s first target for a merger. The Scottish firm is believed to have spoken with a number of larger firms, but found mismatched profitabilities problematic.
To address this the firm has de-equitised partners and Shaw has indicated his flexibility by moving away from the firm’s all-equity model - a must if the firm is to merge.
Logistically, Bircham is an easy fit for Dundas. It is almost the same size as Dundas’s London office in terms of lawyer numbers (106 qualified lawyers at Dundas to Bircham’s 110) and the turnover are also comparable: Bircham pulled in £31m in 2010-11, while Dundas London turned over £24m. And billing rates at the firms are likely to be similar, although sources suggest that a merger may mean Bircham’s fees rise slightly while Dundas’s drop.
“Dundas has been trying to find a firm to merge with for a while and initially they wanted someone bigger, but now it seems they’ve gone for someone smaller and will try to build on that in the next five years,” says another source close to the firm.
Such a proposition may provoke uncertainty among Bircham’s lawyers, particularly as it is likely to be Dundas’s culture that dominates. One commentator on TheLawyer.com speculates that Dundas’s intention may be to “asset strip” Bircham for its parliamentary drafting practice, but such a dramatic course of action looks unlikely.
“In the next five years there would likely be change at the firm, but it wouldn’t be a rape and pillage scenario,” said the Dundas source. “I expect there would be some sort of guarantee for the Bircham partners contained in any merger agreement - and if not they shouldn’t really be lawyers.”
In the balance
It is tough to call how partner voting will play out at either firm; sources indicate an undercurrent of reluctance among partners on both sides. Responses to The Lawyer UK 200 Annual Report 2011 partner survey also gave some insight into how members view their firms’ strategic visions.
When asked how satisfied they were that management has a good grip on the current and prospective financial measures of their firm’s performance, one partner at Dundas replied that “short-term profit” was “uppermost in mind”.
Meanwhile, another replied that they were “extremely dissatisfied” when asked whether the firm’s management consults widely and takes account of partner feedback, adding: “Partnership votes have been bullied through and people told to vote in a certain manner regardless of general feedback received.”
At Bircham a partner described the management board’s strategy and vision as “an utter disaster - a blind man would have better vision”. That said, another partner replied, in response to the question about the firm having a grip on the financial measures of the firm’s performance, that “this is something management does understand”.
That thinking feeling
Even if partners do not agree that this particular merger is right, the reasons that drove the firms to each other in the first place are not going away. Consolidation is a topic that will give these firms a lot to talk about in the future - or not talk about, as the case may be.