After shocking the legal world with their merger announcement, Hammond Suddards and Edge Ellison have decided that the best way forward is to emulate the pukka Macfarlanes. Abigail Townsend reports on whether the firms have anything in common.
It seems that Hammond Suddards’ recent £1m Saatchi advertising campaign was prophetic. “Official: Our expansion is faster than our whippet,” the ad proclaimed.
And last week, after barely a month of negotiations, Hammond Suddards and Edge Ellison announced they were merging to create the nattily-titled Hammond Suddards Edge.
Edge Ellison’s James Retallack and Hammonds’ Chris Jones have taken their firms by surprise. As one former Hammonds partner wryly says: “The merger is successful in catapulting Hammond Suddards into the second-tier without them even trying.”
It is an extraordinary volte-face. For several years, Hammonds’ strategy has revolved around attempting to shore up London. It is London, and in particular the corporate finance practice, that the firm intends to be the jewel.
Hammonds managing partner Chris Jones says: “The key fit is corporate finance. We have both been looking to bulk up our finance teams particularly in the City and lateral hires are incredibly tough at the moment.
“We want the reputation that Macfarlanes has got – the ability to do high quality, sensitive jobs. We are as big as Rowe & Maw and Macfarlanes, and Edge Ellison’s office is very profitable.”
Jones’ challenge elicits a measured reaction from Macfarlanes. “We wish them well,” says former senior partner Vanni Treves. “But it’ll be a very long haul.”
In terms of resources, Hammond Suddards Edge certainly matches Macfarlanes and Rowe & Maw. Macfarlanes has some 52 partners and Rowe & Maw has 80. Compared to this, the combined London office of Hammond Suddards Edge now has 70 partners, 42 of which are from Hammonds. Edge Ellison has brought 14 corporate finance partners to the London part and Hammonds has brought 19. The office will be headed by Hammonds’ head of corporate Richard Burns.
But of course, it is not all about the number of bodies. It is about client profile. Certainly, there are some superficial resemblances between Hammonds’ London and Macfarlanes’ corporate practices. Both concentrate largely on private M&A, for example.
Macfarlanes acts for, among others, PPGIndustries, Omnicom and Havas. And there are some gems in Hammonds’ and Edge Ellison’s client lists. Edge Ellison acts for advertising giant WPP and Hazelwood Foods, while Hammonds’ clients include engineering heavyweight FKI and Kodak.
However, Hammonds lags seriously behind Macfarlanes on private equity. While it acts for Legal &General and Barclays Private Equity, it has a stronger reputation in the City private equity market for management teams. Macfarlanes, on the other hand, regularly advises larger players such as Cinven, 3i and Alchemy Partners, plus solid mid-market players such as Gresham.
But there are other similarities, notably in the sports, media and entertainment sector. Macfarlanes has acted for Saatchi for years, and also advises Virgin while Edge Ellison has a neat practice acting for advertising agencies. Hammond Suddards Edge is targeting sport as a growth industry, advising three premier division football clubs – Bradford City FC, Leicester City FC, Aston Villa FC and the Football League, as well as the Professional Cricketers’ Association. The idea is to take this client base and extend it through to the new media space as dotcoms continue to thrive.
However, there is one obvious difference between Hammonds and Macfarlanes – money. According to The Lawyer 100, Macfarlanes’ profits per partner averaged £470,000 last year – reflecting its pukka client base. Meanwhile, Hammonds – buoyed by the profitable HammondsDirect business – averaged £338,000.
What’s more, with the Edge Ellison merger, Hammonds is now a thoroughly national firm, with offices in Leeds, Manchester, Bradford and Birmingham. But Macfarlanes’ decision to operate a one-office outfit with a tight partnership is often credited as the driving force behind its profitability.
In cultural terms, Macfarlanes rarely hires partners from the outside, which has resulted in remarkable cohesion.
Hammonds, on the other hand, has built its entire London office on laterals. It began in earnest in 1996 when it hired derivatives specialist Iona Levine from HSBC(who has subsequently left for Baker &McKenzie) and corporate tax expert Christopher Haan from SJ Berwin. Recent hires include corporate finance partner Martin Thomas from Edward Lewis and Merricks’ head of construction Rupert Cowen, who despite heading the Birmingham office, has joined Hammonds in London.
Yet for all this, Jones is clearly fixated on Macfarlanes as a model for Hammond Suddards Edge, not least for its focus on recruitment and training. “A firm like Macfarlanes is fanatical about it,” he says.
As if to underline the point, Hammonds recently put its newly qualified salary rates up to £40,000.
Whether Hammond Suddards Edge can achieve all its goals is another matter.
The firm’s power base is very much in Leeds. Chris Jones will stay in the North for the foreseeable future and senior partner John Heller is officially based in the city, although he spends two days a week in London.
One former partner believes that Hammonds’ current northern-based management, high equity numbers and the cut-throat nature of the City, will hinder progress significantly. “[Hammonds’] management is like a northern mill owner,” he says. “London is a difficult market and doing work over a beer and a packet of crisps just will not do.”
But the merger may turn out to be rather astute. After all, if Hammond Suddards Edge cannot leverage itself into the mid-tier bracket with Macfarlanes, Rowe &Maw or Travers Smith Braithwaite, then at least it can reinvent itself as a national firm. Again.
The firm has offices in Leeds, Bradford, Sheffield, Liverpool, Manchester and London. At £125.7m, its gross fees are lower than rivals such as Eversheds but its partner profits are higher at £283,000. The 30-partner Birmingham office has a total staff of 245, of which 135 are fee-earners.
Prior to the merger with Hammond Suddards, Edge Ellison was regarded locally as having lost some ground in the Birmingham market. Its partner profits were particularly low at £150,000, and gross fees stand at £36m. The office had 40 partners and 115 fee-earners out of a total staff of 370. Its nine-partner Leicester office will close within the next couple of months.
Probably the most widely-based of all the country-wide firms, Eversheds has offices in 13 UK cities. The Birmingham office is one of its largest, with 38 partners out of a total staff of 505. But the firm’s profits are among some of the lowest in The Lawyer 100 top 10 at £211,000. Gross fees are £177.5m.
One of the smaller Birmingham firms, Martineau Johnson is still regarded highly by lawyers in the Midlands. Gross fees at the 34-partner firm are £11.8m although partner profits stand just below Edge Ellison’s at £130, 000. The firm has a total staff of 270 with 108 fee-earners.
The national firm attempted, and failed, to merge with Edge Ellison three years ago. As well as Birmingham, it also has operations in Leeds and the City. The Midlands office has 57 partners out of a total of 185 fee-earners. Gross fees are at £52.2m with profits per partner at £250,000.
Wragge & Co
Out of a total staff of 1,015, the firm has 543 fee-earners, 94 of which are partners. The firm is based only in Birmingham, although it does have a small presence in Brussels. Its gross fees last year were £42m with profits per partner at £263,000.
THE VIEW FROM EDGE ELLISON
Ask any Hammonds partner whether opening in Birmingham was planned and the answer would have been a firm no. Even Chris Jones, joint managing partner of Hammond Suddards Edge and former Hammonds managing partner, claims that Birmingham did not even appear on the horizon until a few months ago.
“We had talked about Birmingham but to open cold is a big challenge. We would not have done it if this opportunity had not come along,” Jones says.
But the merger, apparently, is not about Birmingham. It is about London. The fact that it is being billed more as a London merger than anything else is understandable. Birmingham is a competitive and limited market dominated in the main by four players – Pinsent Curtis, Eversheds, Wragge & Co and DLA. Edge Ellison, despite being one of the oldest Birmingham firms, has not fared well over the past couple of years.
Its profits, at £150,000 per partner, are well below those of the other Birmingham stalwarts.
In 1998, after some years of drifting, Edge Ellison tried to address some of its problems. It introduced a three-year plan, known as “The Way Forward”, after a series of fee-earners left for rival DLA.
The main element of “The Way Forward” was a new method of profit distribution. The firm introduced a system where partners had to meet a set of requirements. While these included obvious factors such as billable hours, partners were also ranked on a raft of non-legal skills, such as management, training and research.
It also introduced a lock-in system where partners were not allowed to leave until 2003. The lock-in and profit share scheme are the first casualties of the merger.
Edge Ellison’s director of business planning and development Meirion Jones says: “It had not worked as successfully as we had hoped. It was also an inordinate drain on management.”
There is also potential for fallout now that there is no lock-in. After all, you cannot combine yearly profits of £150,000 (Edge Ellison) and £338,000 (Hammond Suddards) across the lockstep.
Neither side will admit it is a takeover, but Edge Ellison is certainly the junior partner. Chris Jones says: “Edge’s partners have all slotted into Hammonds’ lockstep. They are relieved that they do not have to assess partners each year. Changing into lockstep is a lot easier than going the other way. I attribute a lot of our success to lockstep. A merit system gives you an easy cop-out. If you have a partner that is not doing so well then you just pay him less.”
Hammond Suddards Edge will have 90 equity partners out of a total partnership of 185. Jones maintains that this number is profitable and that there will be no changes to the numbers.
Edge Ellison’s nine-partner Leicester office, long earmarked to be shut down, will close in the next couple of months. Meirion Jones says that while every effort will be made to relocate the partners and fee-earners, there will be redundancies.