Olswang’s CEO Stewart: Consolidation in the mid-market will accelerate

The April year end is almost here, and a law firm leader’s thoughts turn to financial reporting. And fish.

Olswang’s chief executive David Stewart is on familiar territory. Not just talking about his firm’s performance, a topic he also addressed at the half-year stage when the firm’s six-month revenue rose by 15 per cent to £57.6m (12 November 2013), but also his favourite restaurant, where he is tucking into a veritable boat-load of sushi.

To be fair, The Lawyer is doing its best to help out with the fish at Eat Tokyo in Holborn, although everyone is a little wary of the still-alive and gently twitching lobster.

As the plates of food are slowly munched, The Lawyer quizzes Stewart on law firm financials including the growing trend for firms to operate with debt and how he thinks Olswang’s 2013/14 will turn out. The latter, he says, is looking positive.

“We’ve seen good increases in revenue and profits, though it’s too early to say precisely how much,” says Stewart. “Probably up by around 10 per cent plus.”

Any managing partner will tell you that the last few weeks of the financial year are the busiest, which makes giving a precise answer understandably difficult. But it is clear from Stewart that his firm’s investments in building an international platform are starting to pay off, a trend that has been apparent over the course of Olswang’s year.

Which should come as some relief, considering the fact that Olswang’s net debt has also been on the rise recently.

The Lawyer is currently researching debt levels across the UK market. Its data, due to be published in an in-depth report on 7 April, shows that the trend is generally up.

Irwin Mitchell’s £90m facility, reported yesterday (27 March 2014), appears to confirm this and suggests that many UK firms are now accepting debt as part of everyday commercial life.

Stewart admits that he would like Olswang’s lock-up to reduce, which would bring down the firm’s need for debt as part of overall working capital.

“But I do think there is a real need to invest in our strategy to become a global TMT full-service firm, and we’re comfortable doing so,” adds Stewart.

What impact do you think the trend for firms borrowing money will have on the increasingly segmented UK market, if any?

“I don’t know if it will result in more firms in our market segment borrowing more,” says Stewart, “but without a clear strategy and a track record of successful investment, they’ll find it harder to borrow money to fund day-to-day working capital demands, especially so if the need for more working capital is driven by a lack of financial discipline, such as increasing lock-up days. This will likely accelerate the consolidation of the mid-market, as firms will struggle to make the investments in technology and systems necessary to be more efficient.”

Earlier this year The Lawyer reported that Olswang’s debt had increased by £3m (21 January 2014), partly due to the costs of international expansion. Stewart insists the firm is now seeing a return on that investment.

“We’ve seen the biggest increases in Germany, London, France and Singapore, in that order,” reveals Stewart. “And our TMT sector strategy has really worked for us. It ties our international expansion together, creates network clients that are easier to cross sell, helps us focus and invest our discretionary time and cash in the same general direction of travel. It also gives us a narrative to go to market with that differentiates us from the crowd. I see an increasing number of firms really focusing on sector strategies internationally.”

As for Olswang’s growing debt, Stewart says much of this is not only related to the firm’s investment in its overseas offices but also in people, premises and technology, “that will pay off longer term”.

Nothing fishy about that.