Crunch time

The past few years have seen dramatic changes at Lawrence Graham and Nabarro, two firms hit hardest by the real estate downturn. But as LG approaches its 300th anniversary, it is looking its age, while Nabarro still has its bite

Before you embark on a rebrand there’s so much to consider. How much are you willing to invest in a renaming and follow-up marketing campaign? How do you attract new clients without alienating longstanding business partners? Will you share your identity with a household-name electronics manufacturer? Evidently, the last issue is easily overlooked.

LG – née Lawrence Graham – has had a tough time of it recently. Stagnant through the boom years of 2006/07 and 2007/08, and then hit hard by the credit crunch, the firm’s fortunes are a world apart from its $104bn-grossing Korea-based namesake.

And compounding its lacklustre performance is the much more upbeat attitude being flaunted by its property rival Nabarro. Nearly 15 years ago that other great real estate specialist was facing its nadir: when Nicole Paradise stepped into the managing partner role at Nabarro in 1999, she was faced with a task of Herculean proportions – the firm was posting zero growth in a boom market and its overdraft was spiralling out of control. Now it is the perfect example of clear and focused management.

Like LG, Nabarro has been hit hard by the current recession. Both firms have signature real estate practices that account for a hefty 28% of revenues and both posted an 11% drop in turnover in 2008/09, reigniting the age-old comparisons that have long dogged these two real estate-heavy, mid-market stalwarts. But that’s where the similarities end. Despite being the younger firm, Nabarro’s chequered past makes it much more streetwise and adaptable than its competitor. If you like a gamble, the smart money is on the young pretender recovering first.

Sowing the seeds

In 2005, LG was ticking along nicely. It was ranked 32nd in the LB100 and its £61.1m turnover topped the London Midsizers peer group by a £9m margin, ensuring its promotion to the Major City group the following year. When Legal Business spoke to then managing partner Penny Francis about the firm’s financials the mood was optimistic: it had just acquired highly rated commercial boutique Tite & Lewis; had posted a steady 4% growth in fee income in 2004/05; and its corporate practice was ahead of budget by 29% in the first quarter.

But the optimism didn’t last long. In 2006 stagnation crept in. Despite revenues jumping 8% – a percentage point higher than the growth recorded by Nabarro that year – it was still short of the 13% group average recorded by the Major City firms, and that translated into a three-ranking slip in the LB100 to 35th. The following year was an even bleaker story – zero growth in a rising market – and that was followed by a paltry 2% increase in revenues in 2008. The firm’s 11% drop in the last financial year was the final nail in the coffin, contributing to a compound annual growth rate (CAGR) over five years of just 1%.

Clearly no firm can afford to post negative growth, but LG’s slim revenue gains through the good years mean it is particularly vulnerable to the current economic turmoil. (Nabarro’s CAGR stands at a far more robust 8%, for example.) Despite the buoyant market of the boom years, you have to go all the way back to 2001 before you see double-digit growth at LG. Somehow, the partnership has allowed the business to bumble through the biggest corporate bull market in history with back-to-back years of static turnover.

Managing the problem

LG’s managing partner is the affable Hugh Maule, a corporate partner who has been at the firm for 20 years and stepped into the central role in 2008. It has been a baptism of fire.

‘It’s taken a long time to grow into the position,’ Maule says. ‘It may sound naïve, but the role is, in retrospect, much more difficult than I would ever have believed.’ Shy to the limelight, the consensus is that Maule is much happier fee-earning, and current corporate head Christopher Tite would have been the more natural fit. ‘Hugh loves practising and just doesn’t seem to be interested in the management side,’ says a source familiar with the firm. ‘Tite would suit the role – he’s really articulate and very experienced.’ In 2007, Tite ran against Francis in a contested election to succeed Bill Richards as senior partner, but lost. Francis stepped up from managing to senior partner.

Maule is the first to admit that he’s not a real estate specialist, and seems uncomfortable answering questions on his firm’s biggest practice area. When asked why LG didn’t make the most out of its property client base during the boom years, he replies: ‘You do know I’m a corporate partner?’

When pushed, Maule admits that the firm may have some underlying problems to address.

‘Those firms that did well were acting for entrepreneurs,’ he says. ‘We have not got a strong entrepreneurial client base. We’ve got a corporate client base that is steady and generates regular instructions. If I were to be unkind, I would say that our real estate practice has been unexciting.’

‘You can’t enter a downturn and watch turnover decrease by 11% and then sail on. You just can’t ignore that.’
Nicole Paradise, Nabarro

The firm has had some good wins recently. Most notably, in February 2009 it won a three-year appointment to become Liverpool Victoria Asset Management’s sole legal adviser on property matters. Nevertheless, the firm still needs to ‘push those boundaries’, Maule admits, ‘because other firms did that when the market was in its heady days, and we didn’t’. When asked why it took so long for the firm to address the problem, it becomes clear that there was a startling lack of urgency amongst the firm’s management board.

‘We have sat down to look at our business now, but initially we took a very, very long-term view of the market,’ Maule says. ‘We started off with the proverbial blue-sky thinking and tried to determine what we thought the London market would do as a world market, where English law fits into all that, and actually where the English language fits in. From all that you come back to where you are today and you think, having made those decisions about where the markets are going in the long term, what do we need to do to the business as it stands today?’ It is an astonishing indictment of the management structure that following a revenue flatline the firm was distracted by big-picture discussions about English-speaking markets.

Maule says management has now been honed into a well-oiled machine. In corporate parlance he is the chief executive and Francis, as senior partner, is chair, but to be a successful business decisions need to be made quickly and transparently. When asked if real estate will meet budget this year Maule says yes, but won’t be drawn on figures. He also says that overall he expects ‘modest growth’ in firm revenues this year, but again won’t suggest what sort of numbers we could be looking at. What LG desperately needs is some transparency.

Compare apples to apples

Across town at Nabarro, managing partner Paradise and senior partner Simon Johnston comprise a totally different, slick and finely tuned operational unit. The pair finish each other’s sentences, tread the party line word for word, and are comfortable revealing every figure and statistic. This is not a nervous firm or one with something to hide.

‘You cannot enter a downturn and watch turnover decrease by 11% and then just sail on,’ Paradise says. ‘You just can’t. The first six months of 2008 were our best six months ever, and when the crunch came it was sudden. You cannot ignore that.’

Like LG, Nabarro went through two redundancy rounds in an attempt to shore up losses. It also boosted capital by £5m during the 2008/09 financial year through partner cash contributions.

‘We haven’t increased our capital contributions in the ten years I’ve been here, so it was needed,’ Paradise says. Turnover slipped 18% on last year for the first six months of the current financial year, but the firm still reported its six-month figures – LG refuses to do so even in what looks to be a relatively good year.

‘When Simon and I made partner in 1990 the firm was not prudent. We found ourselves in the situation where we thought we were entering into a great partnership,’ Paradise says. ‘And then we saw the figures. Or rather we didn’t see the figures – the firm wasn’t hugely transparent then.’ At this point Johnston interjects: ‘That gave us the realisation that that wasn’t the way to run a business. For the last ten years we’ve tried to evolve the business into a modern-managed, professional partnership.’

The firm has made an important strategic decision to focus on corporate and dispute resolution and reduce the firm’s historic reliance on real estate. While Nabarro says that, contrary to popular opinion, real estate has never accounted for more than 40% of the business, it wants to reshape the practice and get more profile for corporate, litigation and projects. Again, it’s something LG has often talked about, but is yet to focus on.

When asked about practice mix at LG, Maule is convinced that his firm has a ‘natural hedge’. The figures tell a different story: during the last financial year 35% of the firm’s 82 full-time equivalent partners were in corporate and 29% were in real estate, meaning nearly two-thirds of the partnership are weighted towards transactional work. The firm’s own calculations show that 31% of turnover is from corporate and 28% from real estate. The figures at Nabarro seem roughly the same (see pie charts, page 57), but in fact corporate and real estate represent a more healthy 52% of the business – and the firm is looking to pare that down further. Nabarro’s recent rebrand was a way of kickstarting that process.

Clear the air

Nabarro began researching its rebrand before the millennium, not knowing that it would unveil a new corporate image in the same year as LG. The thinking was simple: ‘The market has always perceived us as being more real estate biased than we actually are,’ Paradise says. ‘Someone asked us a little while ago if we were 70% property, and that’s never been true. We wanted people to recognise our strengths in other areas.’

The firm finally went to its IP team for instructions on how to start modernising its image. Despite the process being ‘a bit touchy feely’, Johnston says they eventually came to the new design ‘not in a scientific way, but intuitively’. The firm’s ‘clarity matters’ slogan raised some chuckles when it first hit the market, but one senior partner at a rival firm concedes that Nabarro has ‘succeeded where few other firms have’.

‘I think we succeeded because we continued to invest in it,’ Johnston says. ‘Clarity resonates with our clients – that’s why they come to us – and the logo is really distinctive and visual in its own right.’

By comparison, LG’s rebranding has been a PR disaster.

Following its move from 190 Strand to sleek new offices in More London, the LG management board decided they needed to freshen up its image alongside its new building. They decided to shorten Lawrence Graham to its initials. ‘Personally, I think it’s worked,’ Maule says. ‘There will be people who might disagree.’ Even a simple Google search for LG shows that it hasn’t – the firm is the sixth site suggested. When you type in “Lawrence Graham” it ranks first.

‘For the last ten years we’ve tried to evolve the business into a modern-managed, professional partnership.’
Simon Johnston, Nabarro

‘I’m quite clear in my own mind and in my message. Our business is Lawrence Graham LLP,’ Maule says. ‘We use Lawrence Graham as a name, particularly overseas because it is an important part of our history, and in our literature.’

‘LG is our logo,’ he explains further. ‘The UK, particularly the legal press, picked up on the LG – the logo – as our name.’

The confusion as to what LG is actually called is compounded by the fact that it shares its initials with a much larger company.

‘Yes, people make the obvious connection with an international electronics company and ask if our brand is in some way impaired by the fact it shares our name,’ Maule says. ‘It’s something we’re conscious of, I can say that. But at the moment it is not at the top of my priorities. I’m trying to drive the practice, our revenues, our sector focuses, our international strategy. It does have a part to play, I cannot deny that. We will see going forward if we feel we need to do anything further about it.’

But the whole brand issue could be a moot point if LG, as one of the independent London firms so often named as a prime merger target, surrenders to takeover offers.

Kill or cure

Sources say that LG has been actively soliciting a merger for some time, getting to advanced talks with Wragge & Co, for example, before the deal collapsed (‘no comment’, says LG). Wragge & Co would certainly be a good bet for the firm, and its fiscal prudence could pull LG back from the brink of financial mediocrity.

‘We have the merger question on a rolling agenda,’ Maule says. ‘We used to say to people five years ago that we weren’t interested. We don’t do that any more, we look at people all the time.’ Maule points to a recent slew of US firms finding the firm an interesting proposition, but it would have to be a firm with time and money to invest. LG’s international platforms are private wealth oriented, in Monaco, Dubai and, since 2009, Moscow. They won’t be to every transatlantic suitor’s taste.

Nabarro is another firm that the market tips for merger, often in the same breath as LG. Consistently opposed to international expansion, and favouring referral networks over global growth, the firm nevertheless needs to expand if it’s to compete with the much bigger firms it so often sees on the other side of the table.

‘We absolutely need to increase in scale,’ Paradise agrees. ‘The gaps are closing between us and the firms above us, but clearly getting smaller is the risk for everybody.’

Wragges’ Birmingham cost base would be the other potential attraction for LG – the one-site firm is currently reliant on servicing all its clients’ needs from an expensive London HQ. CMS Cameron McKenna’s Bristol outpost might be worth aping as LG struggles to keep costs down. Maule believes the firm manages its cost base very well, but admits that an outsourcing office couldn’t hurt.

It has worked very well for Nabarro. ‘Sheffield has been a great hedge for us,’ Johnston says. ‘It represents 20% of the business and has grown year on year for the last ten years. Because it doesn’t have a large London corporate practice you don’t see the corporate spikes that you see in the London office.’

It’s just another area where Nabarro looks fresh and modern, while LG desperately needs to find some momentum. The ‘modest’ increase in revenues expected this year is a step in the right direction for Maule, but you get the feeling that there is no clear strategy or ambition driving the business. Despite Nabarro’s 18% half-year decrease, its dynamism sends out a far greater message of strength. Prior to the credit crunch the firm was shining brightly. In 2006/07, its revenues had leapt 15% to £123m, its profit margin was a sturdy 39% and it posted the second-highest PEP growth in the Major City table (up 26% to £567,000). However, Nabarro’s surge in profitability during the boom has been met with an equally resounding crash. In 2008/09, its profit margin fell an alarming 11 percentage points and its dip in PEP was double that of LG’s (-38%).

The fact that the equity is spread more widely at Nabarro also reflects poorly on LG (just 55% of its partnership holds the equity, compared to 72% at Nabarro), but neither firm is a palatable financial prospect at the moment.

The credit crisis has taken a massive bite out of both Nabarro and LG, and their considerable investments in the real estate market have left both exposed. Nabarro is no superhero, but it is a consistent performer in the LB100 – it was the 23rd largest firm by revenue in 2005 and was still in the same place in 2009.

Nabarro used its rebranding exercise as an opportunity to reassess its ambitions, and despite losing its momentum since the downturn, it knows where it wants to be. At LG, the change of image only helped it further lose sight of its core.

As both seek to reinvigorate post downturn, it’s time for a fresh approach. LB