Legal Business Blogs

Market reaction: jury still out on Irwin Mitchell’s £40m takeover of Thomas Eggar

In a move that demonstrates consolidation is still very much on trend for national law firms, Irwin Mitchell’s continuation of its aggressive expansion policy by merging with the south-east based Thomas Eggar this month has garnered a mixed reaction from the market.

It is clear that Irwin Mitchell – a law firm traditionally known for its personal injury work as its omnipresent TV advertising campaigns have proved – has been moving further into the private client and commercial sectors following its acquisition of Mayfair boutique Berkeley Law a year ago. The national firm has needed to significantly diversify its revenue streams, with PI fees being hit hard and another government crackdown on claims recently announced in the Autumn Statement.

This push into private client and commercial services has been enhanced by its merger with Thomas Eggar, which is regarded as having a heavyweight private client practice in the south east and cited as top tier in the regional section of The Legal 500 for planning and sports law.

‘It is interesting because of Irwin Mitchell’s acquisition of Berkeley Law last year,’ says one partner in the management team at a national firm. ‘Clearly they are very interested in private client – we thought the Berkeley Law acquisition was very interesting because that was a very top quality, niche private client practice. Private client can be really profitable but you have to be in the right part of the market. You have to be doing it for relatively high-net-worth people.’

According to another peer, Irwin Mitchell had been looking in the south east for some time for the last few years in a bid to build out its national coverage. The firm already has a Southampton office, but it is one of its smaller offerings with 27 staff.

‘From their perspective I can see why it makes sense because they were desperate to get some big footprint in the south-east of England. They are strong in the north and the midlands; they have a Scottish operation. They have wide coverage but if they want to be a truly national firm I guess they had to have a proper flag in the ground in the south east.’

The acquisition of Thomas Eggar is the largest individual deal in Irwin Mitchell’s history, and those at the firm are upfront about continued expansion being a major part of the firm’ strategy – through further acquisitions and growing organically.

A spokesperson for the firm said it would be looking for further organic growth but would also make acquistions where they would clearly add value to shareholders. The firm brought in a head of corporate finance – Chris Belsham – in 2014, whose role is to look for new opportunities.

As for funding this rapid growth, many touted Irwin Mitchell as the firm most likely to pioneer a law firm IPO in the UK before Gateley broke that particular ground this year. Irwin Mitchell had turned to its banks for finance in 2014, converting its overdraft facility into a £60m loan package.

But while Irwin Mitchell appears to have all but abandoned the idea of going to the public markets for now it was particulalrly vocal about the advantages of floating on the stock exchange back in 2011 and is known to have brought in some heavweight lateral hires on the basis that a signifcant capital payout was likely.

The firm says it has not ruled an IPO out. ‘As far as an IPO is concerned we are often looking at it because why wouldn’t we in terms of understanding if it’s right for our business in terms of raising money?’ says the spokesperson. ‘It’s not something that’s key to us, it’s just an option like it is for lots of other companies.’

Overall, this latest tie-up with 175-lawyer Thomas Eggar – which has six offices in Chichester, Gatwick, London, Newbury, Southampton and Worthing – looks to be a good bolt-on for Irwin Mitchell. However, some in the market are sceptical about the benefits for the smaller south-east outfit.

Irwin Mitchell may have originally approached Thomas Eggar regarding the tie-up but one partner at a rival regional player firm suggests that Thomas Eggar would have been only too happy to merge, given recent struggles with profitability. The firm announced flat revenues of £41.1m for the financial year 2014/15, although revenues are up 18% since 2010. Profitability is weaker than a number of LB100 firms based in the south, including Stevens & Bolton, Cripps and Birketts.

‘Profits per equity partner were £259,000 last year,’ adds the partner. ‘For a firm of that size in terms of headcount and turnover – it’s just not good enough really. And I suspect that Vicky Brackett [Thomas Eggar’s managing partner] was desperate to find some solution to try and improve profitability because when you have low profits you can’t keep your best people. It’s a fact of life. Nor can you attract good new people. Whether this is the answer, I just don’t know.’

Speaking to Legal Business earlier this year, Brackett said the firm had been approached almost every day for a merger and would merge in the right circumstances, including geographic advantage, and the deepening of a particular service line that is selling well – ‘ the ‘expertise merger.’ She also mentioned that consolidation was ‘certainly on the radar.’

On that basis certainly there are obvious attractions to the union. Yet for all the talk of practice synergies and geographic spread coming out of the two firms, there remains little information on the cultural fit. It remains to be seen how a predominantly northern personal injury firm known for its acquisitive nature will gel with a traditional south east firm with a strong focus on private client work.

Not that cultural fit particularly matters in what is by any measure a takeover by the sprawling national player. Thomas Eggar will adopt Irwin Mitchell’s brand in the first half of 2016, while Brackett will join its executive board. The 22 equity partners at Thomas Eggar will be become full share partners at Irwin Mitchell, according to the firm.

The interesting question is whether being ‘the legal brand of choice’ will carry much weight with wealthy landowners in Sussex, or with some of Thomas Eggar’s experienced private client partners.