Travers Smith sees PEP soar by 24 per cent at end of strong 2011-12

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  • Given the 'merge or die' rhetoric of recent months it's interesting to see that two of the best performances so far are from Mishcon and Travers.

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  • @ Anonymous | 16-Jul-2012 12:39 pm - not really, this firm's turnover has not grown over the past five years and it is increasingly sub scale with no international platform and no means of building one.
    The world is changing at a rapid and increasing rate, with globalisation and a big fall in the percentage of GDP accounted for Europe and North America. The legal services market is consolidating at a rapid rate too.
    Let's see how firms like Travers Smith cope over the next decade, competing against firms which are 20 or 30 times larger, and for which the (shrinking) London market is only a small part of their overall business.

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  • I'm not so sure. Mishcon is more niche than Travers, so might survive independently more easily, if clients are indeed leaning towards specialist expertise. I'm less convinced of Travers' identity, and it's not a niche firm, unlike Ince & Co, but it must have a strong reputation. If it can maintain this and offer better value for clients tham MC firms, then there are plenty of other firms who will beat it to the merger table.

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  • Anon | 16-Jul-2012 3:07 pm - I don't think it's firms like TS that have to worry about the increasingly globalised market. The ones who are in trouble are those who find themselves stuck between the mid-market and the top-end work with neither the quality nor the size to do either well enough.
    Firms like TS that stick to what they're good at and don't get suckered into the 'big-is-best' mentaility will continue to chug along doing quality work for the large number of clients who do not necessarily care about or need an international platform.
    How many firms have recently had to close offices in the middle east etc as a result of a misplaced zeal for expansion (rather than concentrating on organic growth)?

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  • well done TSB - they've been the subject of criticism for supposedly being sub scale for at least 20 years, but they just keep rolling successfully on.

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  • there are lots of business models that work. the world is not one size fits all. focus on quality lawyering is the key. firms trying to merge their way to survival is not the answer for everyone

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  • The process of Travers Smith becoming badly sub scale is a fairly recent (and accelerating) one.
    Look at the gap in revenues between Travers Smith and "peers" like Ashurst, Herbert Smith, Norton Rose, BLP, DLA etc 10 years ago, and look at it today. And the gap is still growing fast.
    It takes time for a larger firm built through mergers to be able to properly exploit its economies of scale and leverage its network. It will happen though, and consolidation will keep accelerating.
    Travers Smith is no longer master of its own destiny, it is like a cork floating in the ocean.

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  • Anon | 17-Jul-2012 12:06 pm - While the turnover at these firms may have increased, this doesn't necessarily mean they have been more successful than TS. HS in particular has seen a steady decrease in the equity/non-equity ratio (meaning their PEP is pretty misleading).
    As these firms get bigger they employ a larger proportion of juniors meaning that partnership prospects become more and more remote. Also, because they promote themselves as big enough to handle any job, they need to retain a lot of spare capacity (meaning they don't necessarily benefit from scale). By way of example, Freshfields will soon have to find enough work for the 200+ lawyers who have been working on the olympics...
    Firms like TS, however, can pick and choose their work and don't need to feel that they have to offer massive fee discounts to banks etc just so they can crow about their client roster.
    From the recent list of mergers it seems that it is the firms otherwise falling by the wayside who are desperately trying to bulk up. I think we will find that one average firm plus another average firm just equals a larger average firm...

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  • There are returns to scale in every industry, which is why every industry has a trend towards consolidation over the long term.
    Law is no different, just at an early stage of consolidation for historical reasons, many to do with regulation. Over time a firm with £2 billion in revenues will be able to generate significantly greater economies of scale that one with revenues of £100 million.
    It may take those economies (relative to the firm withrevenues of £100 million) in a higher profit margin, or it may use them to lower prices, or may invest more in its business.
    The comment above about large firms operating with spare capacity at times - so do smaller firms, the numbers are less numerically but not so proportionately. Any firm which does transactional work (and Travers Smith does) with have fluctuations in utilisation throughout the year.

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  • Don't you just love the words "despite a static equity partner count" - there seems to be a presumption these days that anyone reporting an increase in PEP must have done it by taking an axe to the equity.

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