What next for Dundas and CMS?

CMS Cameron McKenna and Dundas & Wilson partners have said yes to a £277m-tie-up that will go live in May 2014. Here Kate Beioley looks at what the future holds for the combined entity.

Christmas can be a lonely time and finding the perfect partner to settle down to long winter evenings with is no easy task.

Dundas & Wilson will be breathing a sigh of relief then that their long hunt for a lasting relationship is over, having sealed a deal with CMS Cameron McKenna last week (12 December 2013).

But with profits and revenue sliding fast and increasingly tense relations between London and Scotland questions are being asked about what the merger will mean for the firm.

Last year the firm’s highest-paid partner pocketed 39 per cent less than the previous year, going from £454,955 in 2011/12 to £278,774 and according to a source that figure was as high as £700,000 three years ago. Net profit in Scotland also fell by 22 per cent to £8.1m (29 November 2013).

That came on the back of dismal year-end figures for 2011/12, with turnover down by 12.4 per cent to £54.5m and net profit dropping 35.2 per cent to £16.2m.

The Edinburgh-headquartered firm is not playing with a strong hand according to one source, who comments, “management see a merger as their way out, the reality is that they are an ugly bride”.

So what does CMS want from its new romance? Sources suggest it is not the firm’s client list but its potential as an cheaper base for CMS work.

“I think CMS see it as a similar venture to Ashurst in Scotland and Herbert Smith Freehills (HSF) in Ireland,” says one source, while another adds “CMS are probably looking at doing something similar to Ashurst, getting a service centre up here almost like an onshore base for CMS work.”

The tie-up will hand CMS Dundas’ offices in Glasgow and Aberdeen. Historically that would have handed CMS attractive work with major banks – before RBS was nationalised it was one of the firm’s best clients, worth an estimated £5m-£8m to the firm (26 November 2012).

But when the bank was nationalised the centre of power shifted to London and times got tougher.

“There are no Scottish-headquartered financial institutions left and they don’t have major relationships with RBS anymore so I can’t see CMS doing this to chase clients,” says a source.

Some suggest that it is Dundas’ energy clients that are attractive to CMS. The firm has a number of oil supply and trading companies as clients and gets work in Aberdeen and Glasgow. Indeed the negotiations were led by CMS Scotland energy partner Stephen Miller.

But sources say the Dundas brand could see the same fate as McGrigors, which disappeared from view when swallowed up by Pinsent Masons in February 2012 (2 February 2012).

“A partner said to me: ‘What’s the name of that firm that Pinsents merged with again?’ That’s what it will be like here: there will be no memory of Dundas in a year’s time,” says one source, adding, “despite the history of these Scottish firms, once they’re gone they completely leave the memory.”

Another adds: “This is no different to what happened with Pinsents and McGrigors.”

Questions are also being raised over the thorny issue of the firm’s London office which many think could be under threat, despite being potentially persuasive for the merger.

At its peak the London office had a headcount of 200 but the firm has been losing people heavily over the last year. Most recently the firm lost corporate specialist Julian Mathews, who joined Wedlake Bell in April (12 April 2013) and private equity duo Simon Sale and Nadim Meer who quit for Mischon de Reya in the same month.

Those departures came after London energy parter Carl Asser’s exit to Payne Beach Hicks in March, and the departure of banking partner and former Stephenson Harwood CEO John Pike to Osborne Clarke in February (4 October 2012) along with real estate partners Shane Toal and Nick Padget (27 February 2013).

The relationship between Scotland and London has not been a smooth one for the firm, emphasised by a sudden management reshuffle last year, which saw London-based Donald Shaw stand down (8 March 2012).

A source says: “Donald recognised that he’d lost support of a significant number of people and resigned. The perception from a lot of people was that the removal of Donald was a move by Scottish partners.”

“Donald’s policy throughout his tenure had been to build London,” another source continnues, claiming that his exit was the result of a ”coup by the Scottish partners” who were not pleased with the London focus.  

Shaw was followed quickly by chairman David Hardie who also stood down. The firm voted in new leadership in the form of co-managing partners Allan Wernham and Caryn Penley and chairman Laurence Ward.

It is believed partners were hoping for one of three strategies – investment in London, investment in Scotland or a substantial merger. The new management saw things differently and decided on simultaneous London and Scottish growth, which, sources say, was unrealistic given the tight budget.

A source says: “There has been a sentiment in London that there’s a lack of understanding by management that the firm won’t grow much in Scotland.  London has been left to wither on the vine.”

Another says: “If you’re not Scottish, they don’t want to hear a word you say.”

But it is understood that London may have been an important bargaining chip for the merger and the London office’s accounts show a more resilient profit margin. Last year it produced revenue of £18.5m, with profits of £4.3m, meaning that its profit margin of 23 per cent is considerably better than that of the Scottish LLP, 17.4 per cent.

The future of the office remains uncertain, with sources saying they expect it to close. 

“They’ll close the London office in 2015 when the lease expires,” says one, while another adds: “I can’t see it continuing in its London. Real estate and support function are key in London but the rest you could probably completely cut off and it wouldn’t make any difference.”

With a total of 539 Dundas staff heading for CMS neither firm will be lonely this Christmas. But not everyone will remain by the hearth and, according to some, the Dundas brand could be headed for the cold.