Legal Business Blogs

Comment: There’s value in CMS’ purchase and one big hurdle ahead

In the wake of the eye-catching tie-up of CMS Cameron McKenna, Nabarro and Olswang, Legal Business noted last year that the gnomic messages around the union made it a hard one to judge. And even after a detailed assessment of the largest UK legal merger ever, as we undertake for this month’s cover feature, it’s not easy to put the pieces together.

In part that is because CMS Cameron McKenna as the firm driving the effective takeover has become a difficult player to judge or benchmark against peers. While the CMS network has grown robustly in recent years, Camerons itself has often shed revenues since the banking crisis.

The insistence on positioning the CMS network as a fully-fledged entity to the point of providing financial benchmarks on a group-wide basis only further muddies the water. Personally I would say it has been counter-productive in branding terms as neither fish nor fowl but I will not labour the matter here.

What is apparent on closer observation is that Camerons has been a proactively managed businesses in the New Normal era, keeping an increasingly tight grip on its partnership, back office and costs.

Such operational rigour helped the firm pull off its 2014 takeover of Dundas & Wilson with considerable success and further strengthened the hand of the leadership team of Penelope Warne and Stephen Millar. And the Olswang and Nabarro takeover has more than shades of the Dundas deal, providing a chance for Camerons to pick up assets marked down after a periods of drift and strategic impasses.

That hint of distress – particularly notable with Olswang – hardly bodes ill. The history of legal mergers has seen plenty of productive unions in which a weaker partner backed themselves into a corner.

Knowing who is calling the shots brings clarity to the transaction, and putting assets up for sale provides the chance for the acquirer to realise value. And Olswang and Nabarro bring something substantive to the table. Combining the three to create a £430m practice with muscular industry coverage across energy, media, tech, financial services and real estate with economies of scale and a decent balance sheet is hard to query, even before you consider its huge international reach. Even the ex-partners, peers and mourning Olswang veterans with a sentimental view of a firm that was always a stronger brand than business do not question the logic of the union.

The biggest issue hanging over the merger has to be over the ability to focus three partnerships that have collectively failed to build revenues in recent years.

Even allowing for a low-growth environment, this trio have leaked market share, damaging in an era in which many mid-pack players are not just surviving, they are thriving. Camerons’ equity partner/fee-earner ratio is already eye-wateringly high for a major law firm. The danger is that rigorous operational management morphs into outright financial engineering and scale just allows the giant to sustainably fail for longer.

Providing CMS UK is alive to that very real risk, it has a huge opportunity to seize, bigger than you could imagine any of the three firms having independently. In the face of an uncertain legal market, it has taken the bold step. Audacity does not take you all the way, but it goes pretty far.

Read more in: ‘Sale of the century – Has Camerons picked up a bargain with Olswang and Nabarro?’