10 July 2006
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This is one Manchester firm which is not a success story. Cobbetts has spent the past 10 years growing - and growing, and growing. Since 1999, turnover has risen by 488 per cent, from £11m to £53.7m this year.
But a closer look will tell you a different story. In the biggest bull market for years, Cobbetts' profitability has actually dropped - from a £210,000 average profit per equity partner (PEP) high in 2002 to this year's predicted £190,000 at least.
The results are a far cry from managing partner Michael Shaw's aim of £225,000, and an even further cry from the PEP reported by regional rivals Halliwells (at nearly £507,000 this year) and Walker Morris (£605,000).
Cobbetts' situation is so acute that the firm has embarked on a redundancy programme, stripping out 20 salaried and equity partners in a bid to raise profitability. The departure of those 20 follows the loss of 24 partners during the past two financial years, as Cobbetts attempted to implement an overly ambitious growth strategy, which saw five mergers within 36 months.
Sources close to the firm also hint of deeper-seated troubles, with rumours of capital calls, hefty overdrafts and pensions deficits in addition to low morale. Shaw dismisses most of the talk. He grudgingly admits that this year's results were disappointing, but claims: "It was a fairly reaching target in the first place."
Shaw maintains that the profitability lag is expected as part of Cobbetts' long-term strategy, drawn up in 2001. "What we set out to do, and what I think we've been successful in doing, is that we saw an opportunity in the market and wanted to create the leading firm operating outside London," he says.
Has that worked? Other regional firms such as Halliwells and Shoosmiths have all expanded at breakneck speed and have managed that growth without any dramatic dip in profitability - quite the reverse. Neither has Cobbetts built any market-leading practices in Manchester, Leeds and Birmingham.
The firm's growth has prompted an expensive investment in new premises, including in Manchester's 10,591sq ft Cobbetts House.
Former partners say that earlier this year Cobbetts completed a sale-and-leaseback on Cobbetts House to clear a bank overdraft rumoured to be at least £10m. However, Shaw denies this, saying the firm has "never operated outside its banking facility" and that there was no sale-and-leaseback. He says the cost of the Manchester office will kick in during the 2007-08 financial year and that, from "an accounting point of view", the firm has no honeymoon or rent-free period with its new premises.
Cobbetts is also wrestling with a pension deficit, understood to be around £500,000. However, Shaw shrugs this off, saying that the firm is using an investment strategy to cut the deficit. He adds airily: "Such is the insignificance to me of what the deficit is that I don't even know what it is."
Speaking to Shaw, one would imagine that Cobbetts is a land of milk and honey, where morale is high. "It's a bloody hard step taking 20 partners out of the business. It's not some frolic," he says, "but I really don't think morale is low at all. These are things that we're going to have to go through. My morale is excellent."
The Cobbetts plan is to increase PEP to £300,000 in two years - a 58 per cent increase. The firm has a hard road ahead before it can claim to be the 'top firm outside London'. Indeed, that day is a long, long way off.
1996 Michael Shaw elected as firm's managing partner. Cobbett Leak Almond becomes Cobbetts.
1997 Merger talks between Cobbetts and Halliwell Landau break down after a disagreement over profit distribution.
1998 Nine partners from Manchester firm Slater Heelis join Cobbetts.
1999 Shaw gets re-elected as managing partner.
2001 Shaw elected for his third term as managing partner, although current term does not end until 2002. Cobbetts in merger talks with Leeds firm Read Hind Stewart.
May 2002 Cobbetts and Read Hind merge, giving Cobbetts its first foothold outside Manchester.
March 2003 Cobbetts begins merger talks with Birmingham's Lee Crowder.
November 2003 Cobbetts merges with mining boutique Fox Brooks Marshall.
May 2004 Cobbetts merges with Lee Crowder.
September 2004 Cobbetts merges with Leeds planning boutique Wilbraham & Co and housing practice Walker Charlesworth & Foster.
March 2005 Cobbetts reviews its charge-out rates.
May 2005 Cobbetts' executive board rejigged as senior partner Stephen White steps down, to be replaced by Stephen Benson. Corporate partner Maurice Cowan becomes chair.
January 2006 Shaw re-elected as managing partner.