While both firms will benefit from a tie-up, top 30 hopeful DWF will be in the driving seat
It was the commercial law firm equivalent of discovering that someone had scrawled the name of their crush all over their schoolbook.
In November 2011 RollOnFriday published the news that DWF had registered the domain name www.dwfcobbetts.co.uk, creating speculation that DWF and Cobbetts were in tie-up talks.
When quizzed about it DWF managing partner Andrew Leaitherland said the domain-name incident was down to an “overzealous” IT employee. Previously, Leaitherland had said his firm was “open to looking at the right merger opportunity” and was always talking to two or three suitors. He was even happy to concede that Cobbetts was one of those firms (Leaitherland also casually tossed McGrigors into the conversation as the kind of firm he would be interested in), but added that there was nothing concrete to discuss.
Since then, however, The Lawyer has learnt that talks between DWF and Cobbetts have moved on and a preliminary merger date has been set for 1 May. Neither Cobbetts nor DWF will comment on the matter.
Nevertheless, DWF-Cobbetts is a prospect worth analysing. The combination would create a firm with around £132m in turnover and 1,798 staff. The figures are a rough approximation because Cobbetts has yet to file its 2010-11 LLP accounts and DWF keeps expanding, but it is a combination of two very different firms.
“Cobbetts seems very much like a firm that regretted the passing of the oak-panelled offices, whereas DWF is a firm that never had them in the first place,” says a Manchester source.
Indeed, not everyone is said to be on board: a source close to the firms told The Lawyer that Cobbetts managing partner Michael Shaw would be unlikely to join a merged firm. (Shaw did not return calls for comment.)
DWF’s 2010-11 LLP accounts show 18 consecutive years of growth. In 2010-11 turnover rose by 15 per cent to £83m and net profit by 23 per cent, from £16.9m to £20.8m.
Insurance remained the largest breadwinner, bringing in £41.6m in revenue, while real estate, litigation and banking each brought in around £8m. The firm ended the financial year with more than 1,300 staff across six offices. Since the 2011-12 financial year began DWF has hired a Shoosmiths partner for a Birmingham launch and taken partners from Dickinson Dees and merged with Crutes for its new Newcastle office.
In the closing months of 2011 DWF came to the end of its three-year plan and is drawing up a new three-year strategy. This will likely see an aim to move upstream in the kinds of work it does and achieve its ambition of becoming one of the UK’s top 30 firms by revenue, a target it had hoped to reach by 2010. A merger with Cobbetts could be just the thing.
Say what you like about Cobbetts, the firm has a fine pedigree in Manchester and the corporate practice is a jewel with a client list that could lift DWF into a higher deal bracket instantly. The firm’s turnover, although a long way below where it was in Cobbetts’ heyday, would be more than enough to propel DWF into the top 30, taking it to around number 23.
That said, Cobbetts’ problems, which include multiple redundancy rounds, declining profit and rising debt, are well-known. The struggles have been attributed to its overenthusiastic expansion into Birmingham and Leeds in the early 2000s, its transactional and property focus and an inability to reinvent itself in a drastically changed legal market.
“Cobbetts has struggled for quite some time,” says a source familiar with the firms.
“But Shaw puts a brave face on things, which overcomes what people think they know about the firm. There’s an arrogance they have about their own ability, saying, ‘This is the kind of work we do, why do anything else?’. They’ve just never seemed very adaptable.”
The firm pulled in around £44.5m in revenue in 2010-11, up by 1 per cent on the previous year’s. Its 2009-10 LLP accounts (the most recent available) reveal that on 1 May 2010 it had net debt of around £11.5m – the same amount it received from its new bank, Lloyds Bank Corporate Markets (it used to bank with RBS), in November 2011, when the firm also announced that turnover rose by 3 per cent to £20.5m in the first six months of 2011-12. Unsurprisingly, the talk in Manchester has been that the tie-up with DWF is akin to a rescue merger.
“The view in town on this is that it’s a takeover by necessity,” says a Manchester partner. “Cobbetts has been part of Manchester’s legal firmament for a long time, but it didn’t move with the pace of the global legal market. But it still has a strong client base and that’s what it brings to DWF.”
While Cobbetts can provide the kind of client list DWF wants, a full merger would also bring much that DWF does not need.
“The only reason I can think of why DWF wants to merge is the board’s statement that it will be a top 30 firm,” says a source close to DWF. “Whether this is the correct way to go about it, I don’t know. Cobbetts has good lawyers, but I don’t know what’s in it for DWF when it’s already in all the cities that Cobbetts is in. I don’t know what it adds to take on all those staff and new buildings. In this climate I’d much rather expand by taking teams and lateral hires.”
Quid pro quo
That said, there are those who see the tie-up as a means to create a more complete offering for clients and a way to bridge the two firms’ respective weaknesses.
“I left Cobbetts on good terms and for no negative reasons,” says William Ballmann, who left to start up Gateley’s practice in Leeds (TheLawyer.com, 9 January). “I was heading the restructuring team, which was doing well, but Gateley gave me the opportunity to be in charge of my own office.
“I decided to move on in early 2011, before any meaningful talks [between Cobbetts and DWF] got underway. DWF is a successful firm with a high percentage of litigation work, but they’re not that well-connected in terms of bank panels. I can see the logic in a possible merger.
“DWF doesn’t do enough transactional work such as corporate, real estate and banking. Cobbetts arguably does too much and not enough contentious work. So a merger, if it happens, will be a good fit and should be a success on both sides.”
Nevertheless, how much of Cobbetts DWF would want to keep after any merger is a pertinent question. But it is too early to get a good idea of what a post-merger restructuring would look like. Indeed, there is still a lot of uncertainty surrounding the potential merger, which is not helped by the firms’ unwillingness to engage.
One thing we can be relatively certain of is that, if and when the time comes, you will be able to find out more at www.dwfcobbetts.co.uk.