Legal Business Blogs

Analysis: upheaval in Scots legal market continues as Kennedys takes over Simpson & Marwick

Insurance specialist Kennedys is the latest in line of large English firms conducting raids north of the border over the last year-and-half, sealing a merger with Scotland’s Simpson & Marwick after over a year of negotiations.

The 220-partner firm will be initially be known as Kennedys worldwide and Kennedys Simpson & Marwick in Scotland and is the most significant Anglo-Scottish tie-up since McGrigors was acquired by Pinsent Masons in May 2012.

Both firms have been in talks for around 18 months and Simpson & Marwick managing partner Peter Andersen said the merger was ‘a natural progression from the firms’ collaboration over a number of years’. It follows a similar move made by Kennedys’ international insurance rival DAC Beachcroft through its tie-up with Scottish insurance litigation firm Andersens, which went live in September 2012.

However, the union with Simpson & Marwick, which has offices in Aberdeen, Edinburgh, Glasgow, Dundee, Newcastle, North Berwick and London, should raise Kennedys’ revenues considerably. Senior partner Nick Thomas said that the combined firm would have projected revenues of £160m for the current financial year – the firm is looking at up to 21% growth on top of the £117m it posted for 2012/13, while Simpson & Marwick should add around £25m to the top line. Another £12-15m will come through the addition of aviation boutique Gates & Partners, which merged with Kennedys in June.

‘Peter Anderson and I have known each other for years and when probably 18 months ago we were both thinking about whether it was time to have a UK-wide service available to our clients, then it was natural we would speak to each other,’ said Thomas.

The union is not a full merger – there will be two separate LLPs to ensure the Scots side of the business continues to be regulated by the Scottish Bar with the English portion regulated by the Solicitors Regulation Authority (SRA).

‘We would have gone for a full merger, with fully merged balance sheets, etc, but we had to work out ways of satisfying the Scottish regulatory authorities because they won’t allow legal executives and the like to be partners in law firms,’ said Thomas. ‘We will have two separate LLPS but there will be mechanics whereby we can say to ourselves it is one partnership, one firm and not in any way competing with each other.’

The move by Kennedys comes from an increasing desire from large insurance clients for law firms to offer a seamless service both north and south of the border – a similar motivation cited by DAC Beachcroft behind its move into Scotland last year. However, the Scottish legal market also delivers considerable cost benefits to international firms, something that Ashurst has looked to take advantage of through its ‘northshoring’ move into Glasgow in June. Insurance clients are notoriously cost-conscious and this will have encouraged the expansion of their main legal advisers into lower cost centres.

‘It helps the English firms as well as the Scottish firms to say they can provide clients with a one-stop service, a consistency of service,’ said Thomas. ‘If any insurance company is going to say “I want someone to deal with my motor claims north and south of the border” – it’s always been two different firms who by definition are going to compete a little, whereas here we will be able to deliver services to the client all with the same IT bases, which is hugely important these days when it comes to delivering the legal product.’

Simpson & Marwick becomes the latest Scottish firm to effectively disappear into a larger English counterpart, although it does so from a position of relative strength – it is ranked in the first tier of The Legal 500 for defendant personal injury, professional indemnity and health & safety. Scottish law firms have continued to struggle generally, particularly at the top-end of the market with Dundas & Wilson and Maclay Murray & Spens both recording significant drops in both turnover and profits for 2013. In contrast, two firms focused exclusively on advising leading Scottish clients – Brodies and Burness Paull– continue to show impressive growth.

However Maclays’ chief executive Chris Smylie remains committed to the firm’s UK-wide strategy long-term, arguing that space in the Scottish market is finite.

‘When we started our strategic review in 2012, it was for us a process of redefinition as well as a drive for focus,’ he said. ‘With around a third of our revenue coming from our London office, we consider ourselves a UK national cross-border practice, not a Scots firm with a London office as we are still regarded in some quarters. It is this reputation that we want to build and focus on. While it has worked well for the likes of Brodies and Burness Paull to maintain a Scotland-focused practice, that wouldn’t be the right thing for our clients or our business. So whilst Scotland will remain a core market for us we wouldn’t be looking to increase significantly the relative proportion of our business there.’

For Kennedys, its long-running expansion mode looks set to continue. In addition to the Gates & Partners merger, Kennedys launched in both Ireland and Portugal in 2011, merging with Dublin-based associate firm O’Hare, O’Connor, Walshe in June and associate office Almeida & Athayde in March respectively. It also launched a presence in Brazil through an association with local firm Torres Marcellino & Associados. With insurance clients insisting on better-value delivery from firm, further consolidation is inevitable.

‘There is going to be more growth by merger in our market place and we keep our eyes open for other people who look like us and who will fit in and add to what we already offer to our clients,’ said Thomas.