With Manchester-based Cobbetts on the verge of administration, signalling increasingly difficult market conditions in the north, local rivals will surely be able to snap up some bargains and save jobs.
The firm, ranked 62nd in the LB100, announced on 30 January that it was seeking to obtain ‘statutory moratorium to enable a sale of the business and assets of the firm to be concluded in a short time’. The news has sent shockwaves across the legal market and puts Manchester at the epicentre of law firm casualties following the demise of Halliwells in 2010.
Local rival DWF, which was involved in merger talks with Cobbetts a year ago, must be thanking its lucky stars that the deal didn’t come off. Both firms cited ‘difficult economic conditions’ as the reason behind calling a halt to discussions. The truth is that Cobbetts, which was heavily geared towards corporate and real estate work, had been struggling for some time. DWF has since confirmed that it intends to acquire Cobbetts as part of its strategic growth plans.
‘It is believed by the members of both firms that a sale to DWF represents a solution that would secure the most favourable outcome for its creditors, members, people and clients,’ said a statement from DWF.
Last year Cobbetts posted a 2% increase in revenue, while its PEP rose by 16%. But the firm’s compound annual growth rate (CAGR) across the last five years was –5% signalling a difficulty to grow business. In 2010 revenues fell to just under £44m, down from £59m in 2008. Cobbetts’ downfall is the latest high-profile example of a firm becoming the victim of the disappearance of the transactional market and a lagging real estate sector.
Much like the Halliwells collapse, Cobbetts is now going to hope and pray that a number of white knights come storming in to swallow up and save parts of its business. Cobbetts has long maintained a reputation for quality individuals in corporate and real estate, which will present opportunities for acquisitive firms such as DWF.
One north-based management figure observed: ‘What Cobbetts tried to do was create a national brand and grow into the corporate space from a relatively smaller base. It’s a difficult task.’
‘I suspect it’s a process, they had ambitions to get to a particular point and you go out and invest in new offices, but it takes time to build those up,’ they added. ‘The recession came in so getting growth is difficult and if you’ve got new offices and you take a 5% hit on your margin – which is low anyway – it hits hard. That’s been their challenge.’
A statement from Cobbetts says:
‘Having regard to the difficult trading conditions in the professional services sector we have reluctantly concluded that the appropriate course at this time is for the firm to obtain the protection of an interim statutory moratorium to enable a sale of the business and assets of the firm to be concluded in a short time frame.
‘We are also working closely with our regulator, the SRA, with all stakeholders and our professional advisers to achieve the best outcome for creditors, clients, employees and members. We remain confident that we will be able to provide a further positive update in the very near future.’
This latest development shows that no firm is too big to fail and it’s crucial for all firms to ensure that they are competing at the right level in unforgiving markets.