Stuck in the middle
12 September 2011 | By Joanne Harris
24 June 2013
20 January 2014
31 July 2013
24 June 2013
24 February 2014
Mid-tier law firms in Ireland have had to react quickly to the financial crisis to stay afloat. Joanne Harris reports
During Ireland’s prolonged financial crisis the country’s so-called ’big six’ law firms have managed to keep fairly busy, advising on the raft of work resulting from the collapse of the financial system.
However, for many smaller firms the picture has not been quite so rosy. Particularly for practices specialising in property, the work practically dried up. Couple this with a steep rise in professional indemnity insurance (PII) costs and the future for much of the Irish legal profession is uncertain.
A recent survey carried out by the Dublin Solicitors Bar Association (DBSA) found that conveyancing, both residential and commercial, was the hardest-hit practice area for most firms. Increased insurance costs and reduced turnover were identified as the most pressing issues for firms, but clients expecting lower fees and a general reduction in work were also highlighted.
Many firms said they had reduced salaries to partners and staff, and 38 per cent of respondents added that they had made staff redundant as a result of the recession.
Even if firms have avoided redundancies there has been little actual growth in the past four years. Of the big firms, Mason Hayes & Curran has grown most, adding 32 lawyers between 2008 and 2011, according to the Law Society of Ireland’s annual directory. That growth is equal to or greater than the total size of a large number of Irish firms.
The secret to survival in the past couple of years has been, according to those working in small- to mid-tier firms, diversification.
“We view ourselves as being progressive and a bit ahead of the game,” says Feilim O’Caoimh, head of McDowell Purcell’s commercial team.
O’Caoimh joined the firm from Eversheds O’Donnell Sweeney in early 2008, when McDowell Purcell took the decision to bolt on a number of practices to diversify away from its traditional focus on property. Those practices - commercial and renewable energy, insolvency, employment and pensions - have helped McDowell Purcell to keep growing in both turnover and headcount terms during the recession.
Hugh Garvey, managing partner of LK Shields, is another believer in diversification.
“I think everybody has scaled back commercial property in the past few years,” he says. “In the good times we were beating ourselves up that we didn’t have, pound for pound, as many developer clients as our competitors,” he adds, going on to note
that with hindsight this was probably a
Bank on it
Instead, Garvey says, the focus has been more on banking work, although LK Shields has primarily grown internally rather than seeking external hires. The National Asset Management Agency (Nama) panel has provided work for a large number of law firms, although market sources report that much of it is going to only a small number
Banking has also been a useful area of work for solicitors firm Eugene F Collins. Managing partner Sean Twomey points to an instruction on the restructuring of Anglo-Irish Bank in particular, but says a wide spread of clients has helped keep the firm’s lawyers active.
“We’ve kept fairly busy with a spread of clients. We do an awful lot of work with the banks,” he reports.
There is still a small amount of property work around. As an example, Twomey points to Eugene F Collins’s work on the sale of the Montevetro building in central Dublin to Google in February. The deal involved several parties as the building was owned by Real Estate Holdings, in turn majority-owned by investment manager Treasury Holdings.
nd Nama had acquired the building as security for a loan, meaning it also had to get involved.
Mid-tier firms think that paying more attention to marketing and business development is important right now. Ciaran O’Mara, managing partner at niche employment firm O’Mara Geraghty McCourt, says this focus has carried the firm through the downturn.
“We’re doing alright at the moment,” O’Mara says. “And ’alright’ in Dublin at the moment means very good. We’d be holding our own over the past couple of years. We’ve managed our costs well, kept ourselves competitive, and used the internet effectively to develop business. We’ve been picking up quite an amount of work from the smaller guys who have given up the ghost.”
Twomey agrees. “We’ve got to improve our marketing - we’ve got to get out there and knock on doors. There are opportunities. You’ve just got to go out and grab them.”
A continuing effect of the recession that has affected the whole market - and is far from confined to Ireland - is the pressure from clients on fees. Irish lawyers say this has been exacerbated by the cut-price hourly rates instituted by Nama that have been embraced by other clients.
An extra factor that concerns the mid-tier firms is increased competition from the bigger firms. “Bigger firms are pricing down,” confirms Twomey.
“One important factor is the big firms coming down to take work they wouldn’t previously have done,” O’Caoimh comments. “That’s definitely had a knock-on effect.”
But O’Caoimh also says that it took some time for bigger firms to react to the price cuts, enabling mid-tier practices to pick up some new clients who became “very cost-conscious” early on.
Beauchamps managing partner John White agrees that larger firms have become more flexible with regard to rates. However, he thinks the more nimble nature of smaller firms is appealing to clients in Ireland at present.
“There are a number of factors that one needs to take into consideration when looking at the market and the types of clients you’re looking at,” says White. “There’s safety in using a big firm but what we’re finding is that relationships are changing. Clients are looking for responsive, energetic lawyers and a strong, responsive mid-tier firm is more than capable of providing advice to clients for 90 per cent of their legal requirements.
“Plcs have had relationships with big law firms for quite some time and they find there’s a lack of freshness in the relationship. While big firms on occasion can absorb loss-leaders, there’s such a volume of work and the cost base is higher in a big firm, so it doesn’t actually manifest itself in work moving from mid-tier firms to big firms.”
Triumph of hope
The good news is that the Irish recruitment market is buoyant, although it is very much a buyers’ market. If firms need bodies, there is an oversupply of qualified lawyers available. Some lawyers even recount tales of receiving CVs from law graduates to fill secretarial roles, such is the desire to get a foot in a law firm’s door.
“It’s grim indeed for younger lawyers. I just don’t know the purpose of qualifying and working as a lawyer at the moment,” says O’Mara.
Garvey suggests that a “hope factor” is encouraging graduates to continue qualifying into the profession despite the difficulty of finding a job.
Meanwhile, law firms’ management teams have other things on their minds. Insurance premiums in Ireland have been rising sharply in the past couple of years and the recent decision to wind up the Solicitors Mutual Defence Fund, as detailed in our last Ireland Special Report (The Lawyer, 20 June), could exacerbate the problem. The large number of claims in 2008-09 is the main cause of this rise, although the number of insurers writing solicitors’ PII has also fallen.
“Insurance rates have gone up exponentially, and as we get closer to December rumours start that rates are going to be so high you’re going to see a flood of smaller firms shutting up shop. But it actually hasn’t had that level of impact so far,” says Garvey, referring to the annual renewal period.
Twomey thinks the “insurance debacle” could lead to a contraction in the number of smaller firms in the market, although others suggest that the lack of work will make it difficult for small firms to find merger partners. Nevertheless there could be opportunities for firms looking to further diversify their practice groups as a buffer against continuing economic problems.
The future for mid-tier Irish law firms remains uncertain and the mood in the market is mixed.
“It’s a challenging environment but it’s a challenge we’re relishing at the moment,” says Beauchamps’ White. He reports ”consistent” business in the past year and an improvement in the most recent quarter.
Garvey thinks that mid-tier firms should broaden their horizons beyond Ireland to attract work. Some of the slightly larger practices have already done this; a number of the big six have offices in the US while Dillon Eustace has recently expanded into Hong Kong after operating a Tokyo office for some years.
“You do need to be more diversified and you do need to look outside of the domestic market,” Garvey says.
He points out that the Irish market is becoming more like the more mature and sophisticated UK legal market.
“I remember years ago that we’d talk to firms in the UK and hear about the competitive pressure they were under,” adds Garvey. “It’s only really in the recession that these pressures have reached the Irish market.”
Keep on keeping on
Meanwhile the likelihood of further economic turmoil is strong, given the problems in the eurozone, and this worries some in the market. O’Mara is pessimistic and sees the immediate future as a time for the mid-tier to keep its head down.
“It’s all about keeping going as we are in the next 12 months,” he says. “Ireland’s in the middle of a huge transition.”
But others are more optimistic. “The economy clearly has been under pressure for a number of years, so we have a number of years’ experience dealing with it,” notes Garvey.
It’s not likely to be as much as a shock as it was in September 2008. Agility, efficiency and quality are things that always should have been keeping the profession going, and they’re back in the spotlight.”