Wragge & Co senior partner Quentin Poole has always considered Lawrence Graham (LG) an undervalued stock. The City firm topped Wragges’ merger wish list back in 2009, but Poole’s partners had little appetite to pursue a merger a year into the recession. Four years later, and as one of the last major national players without a decent City presence, Wragges’ line that the vast majority of their clients were actually sourced through their London office had become increasingly threadbare. But the timing is good; LG has sloughed off much of its surplus property and despite its apparently irresistible decline in turnover, is an enticing target.
LG’s revenue per lawyer (RPL) of £305,000 benefits from a London weighting and stacks up well against Wragges’ £263,000. LG is slightly over-partnered compared with the Birmingham firm; it logged a revenue per partner (RPP) of £740,000 compared to Wragges’ £1m. The profit match isn’t too far off despite LG’s woeful 14 per cent margin; if you were to merge LG’s net profit and equity partners fully with Wragges’ it would create a PEP of £322,000, not far under Wragges’ current figure of £339,000.
If only the reality were as simple as the metrics suggest. While most other firms throughout the last decade have shrunk their ownership ranks, Wragges’ entire culture is built on the assumption that all-equity equals collegiality, communication and internal efficiency. In taking over LG, Wragges therefore has two choices, both of which will require considerable finesse. It either has to make all 42 LG non-equity members part of the merged entity or create a two-tier partnership. The first option is not impossible; DLA Piper has managed to impose an all-equity model on a far larger organisation, but that was on an existing set-up, not a new one. The second option, while managerially rather more efficient, creates extraordinary cultural problems; LG junior partners really would be second-class citizens and this will create unsurmountable fault lines between London and Birmingham. Here’s the obvious parallel: when Addleshaws took over Theodore Goddard in 2003 only a tiny handful of TG partners were still at the firm five years later. On that basis, those LG folk currently half-way out the door may not be persuaded that the Wragges deal has much to offer them long term.
If the deal is going to work, it’s going to have to create a new partnership that takes account of these issues. The maths might balance, but unusually for an acquirer, Wragges will have to confront its own culture.