Morgan Cole and Blake Lapthorn have finally decided that three’s a crowd and, after months of flirting with Boyes Turner, gone ahead with a traditional two-way merger.
But what will the £72m couple, soon to be known as Blake Morgan, really look like? Boyes Turner might have fled the muted three-way agreement but Morgan Cole managing partner Elizabeth Carr seems to think it’s for the best.
“Having worked exclusively with Blake Lapthorn after Christmas, I think it would have been overly ambitious to have tried to deliver a tripartite merger. We were enthusiastic but that’s a lot of things to fit together,” she says.
Apparently her partners agreed. The 18 March electronic vote was a unanimous ’yes’, which Carr puts down to a good fit between her firm and Blake Lapthorn – whose managing partner, Walter Cha, is to take up the helm of the new firm (20 March 2014).
“We knew each other because we work on a number of similar panels and particularly in the regulatory area,” says Carr. “Partners knew each other and that was good and I think culturally we felt we were not dissimilar in the way we ran our businesses.”
Both firms share a similar geography and a history of growth by merger. They are both in the south of the UK with offices Oxford, while Morgan Cole also has offices in Reading, Swansea and Cardiff and Blake Lapthorn has bases in Southampton, London and Portsmouth.
Their tie-up led to questions about Blake Lapthorn’s South Coast offices and Morgan Cole’s Cardiff and Swansea bases. Days after the news, it emerged that Morgan Cole had launched a 14-strong redundancy consultation in Swansea. The decision was taken just two months before the firm will be able to exercise a break clause in its Swansea lease which allows it to exit the office by the end of the year.
However Carr says this is not as a result of the merger but instead a consequence of Morgan Cole’s decision to offload its claims group to DAC Beachcroft and Berrymans Lace Mawer (BLM) last year (15 November 2013). The reorganisation will mean a reduced headcount in Swansea and consolidation in Cardiff.
“We’ve decided to bring some teams back to consolidate in Cardiff and we are currently actively looking for another space in Swansea, a smaller one, which will suit our clients. We’re looking at options around what the university is doing in its second campus for example.”
Cynical onlookers have pointed to the firm’s decision to offload its claims books as the driver for this deal. Carr doesn’t disagree that the merger was part of a plan as well as offloading its insurance teams. But she denies this was anything but a positive strategy to realign itself in the insurance space.
“We’d decided as a business and had consulted and talked to our insurer clients and partners and looked at the getting the right home for our clients,” she says, adding, “we weren’t going to be a DACB, BLM or Clydes, [we] needed to get those people into the right place. We had set out a strategy where we wanted to look for a firm that we could look to grow with.”
However there is no doubt that the firm’s accounts tell a less than happy story for Morgan Cole. It saw a 32 per cent drop in profit last year due to an issue with its property portfolio (10 January 2014).
Net profit went from £10.1m in 2012 to £6.9m in 2013 and revenue dipped by 8 per cent, from £36.6m in 2012 to £33.7m. Carr puts the 32 per cent drop in profit down to a one-off property charge of £831,500 which has now been resolved.
But it has also raided its cash reserves recently, leaving just over 10 per cent of the amount it had last year – a drop from £1.7m to £193,642.
On the property issue Carr says: “It was particularly an accounting issue and it’s dealt with, we’ve done it, we’ve taken our medicine.”
Blake Lapthorn fared better in terms of profit margin, achieving a figure of 17.3 per cent on a turnover of £45.6m compared to Morgan Cole’s 13 per cent margin on £33.7m (16 December 2013).
However Morgan Cole weighs in as the least indebted of the two with £4.9m compared to Blake Lapthorn’s £8.3m of debt last year, according to The Lawyer’s UK 200.
Blake Lapthorn also holds its equity close to its chest, with only 49 per cent of its 86 partners taking stakes. However the firm has a lower leverage than Morgan Cole, with 4.6 associates for every equity partner. Morgan Cole, by comparison, has one equity partner for every 5.3 associates and an equity at 50 per cent of its 51-strong partnership.
Both firms have grown through mergers since the recession. At the start of the decade Blake Lapthorn was a relatively sleepy Southampton firm with a turnover of around £15m. Then came four mergers in as many years, first with 18-partner Portsmouth practice Sherwin Oliver in 2001, followed by a tie-up with Oxford firm Linnells in March 2003.
After a break of three years there were two significant mergers in 2006, first with Hampshire-based White & Bowker and then with 20-partner Tarlo Lyons.
That fast growth took its toll, with rising debts leading to a call from Walter Cha for partners to inject more capital into the firm back in 2009 (3 August 2009). Ultimately the firm shed equity partners in a bid to rein in its issues. It looks like the strategy could be working.