Legal Business Blogs

Merger Watch 2013 – The runners, riders and fallers at the last hurdle

‘I believe the market lends itself to opportunities for growth and successful law firms will take advantage of these opportunities. It is good for the market and clients. Let’s hope there are more [mergers] in the future.’ So says CMS Cameron McKenna’s managing partner Duncan Weston, who oversaw his firm’s successful tie-up with Scotland’s Dundas & Wilson during an autumn/winter period that has also seen the merger of Wragge & Co and Lawrence Graham, Slater & Gordon’s acquisition of the personal injury business of Pannone, and Pennington’s takeover of beleaguered Manches, to say nothing of the talks announced and not yet concluded or that fell at the final hurdle.

In the second week of December, Cameron McKenna and beleaguered Dundas announced their merger, creating an 830-partner firm with revenues of around €900m, if you count the CMS international grouping.

CMS, which came at the merger from a position of strength, established an energy-focussed office in Aberdeen 20 years ago and an Edinburgh office 15 years ago, where the merger will help the firm expand its presence in the region, while for Dundas, it gives them much needed strength in mass across the UK and internationally.

As observed by Legal Business at the time the merger was announced, integrating the two partnership will come under scrutiny given the wide gap in profitability between Camerons and Dundas. The Scots firm’s 78 equity partners averaged profits of £164,000 in 2012/13, far lower than the CMS-wide average of £439,000. Dundas – for years Scotland’s top firm – has struggled since the banking crisis with revenues falling by 35% over the last five years.

The merger, set to go live in May 2014, throws up numerous parallels with other recent tie-ups, including that between leading Midlands firm Wragge & Co and City outfit Lawrence Graham (LG), announced in November and confirmed in the December.

For one, much like Cameron McKenna, Wragges has been linked to numerous merger talks and in this case its merger partner was also arguably ripe for the picking, LG having fallen outside of the UK top 50 after a prolonged period in which it has struggled for growth. The 200-lawyer firm saw income of £51.8m in 2012/13, a decline of 23% over the last five years. PEP declined 14% over the year to a current total of £260,000.

After a majority vote of more than 75% required and achieved from both partnerships, the combination, which goes live on 1 May 2014, will create a £171m business with 1,300 staff, including 770 lawyers, operating from ten offices worldwide. The two firms had previously held merger talks in 2009, which floundered amid the post-banking crisis recession but were rekindled in July this year.

For Wragges (as with Dundas), the move will finally give the firm the credible London foothold that has so far eluded it.

The desirability and strategic need for a City base is a theme currrently being played out in the merger talks of acquisitive Midlands firm Shakespeares, which ended the year in talks with 80-lawyer West End firm Davenport Lyons, as reported on 16 December. The two firms combined would generate around £67m in turnover, closing in on the Legal Business’ top 50 UK firms by revenue.

Again, Shakespeares is the financially stronger suitor, after Davenport Lyons saw other firms in West End such as Mishcon de Reya, Forsters and HowardKennedy FSI push ahead since the turn of the credit crisis, with its revenues falling 11% from £24.5m to £21.9m in 2012-13, while profit per equity partner (PEP) dropped 12.5 per cent to £197,000.

This is in stark contrast to Shakespeares financials, which saw revenues rise by 55% to £45.4m in 2012-13, due in large part to its merger with Harvey Ingram. Shakespeares also obtained an alternative business licence (ABS) to cater for its insurance clients earlier in the year.

Another new, financially strong player to have taken the personal injury market by storm is Australian-listed Slater & Gordon, which at the end of November announced it long-awaited tie-up with the PI business of Manchester’s Pannone in a deal worth £33m.

The November announcement followed a series of other mergers and acquisitions in a market hit hard by the Jackson reforms and where many law firms are looking for firms with deep pockets and a long-term strategy. The Australian firm has so far in the UK acquired clinical negligence and PI practice John Pickering & Partners, personal injury firm Fentons in August, adding around 280 staff to the rapidly growing firm, Goodmans Law and the personal injury practice of Taylor Vinters, as well as Russell, Jones & Walker for £53.8m last year.

That deal followed the announcement in October that private client firm Penningtons had rescued 139-lawyer Manches from administration to create a £60m firm with over 300 lawyers.

The deal originally had the hallmarks of straightforward merger talks, before it became apparent in October that Penningtons had acquired the trading operations of Manches in a deal brokered by PwC as administrators, which saw 265 Manches employees including 46 partners move to Penningtons.

The list of also-rans; the firms that very nearly secured a merger but were unable to get past the final post include 153-partner Kennedys, which at the start of December abandoned its agreed takeover of Scots practice Simpson & Marwick due to ‘complex reasons’, following 18 months of negotiations and a formal announcement of the union in the summer. The tie-up would have created a £160m practice with strong national coverage in insurance.

Earlier this year, merger talks between private client law firms Speechly Bircham and Withers were abandoned in May, while Addleshaw Goddard and Nabarro also called off merger talks after entering early-stage negotiations over a £280m tie-up in March.

Closely watched US talks that failed included Orrick, Herrington & Sutcliffe in its potentially game-changing talks with New York-headquartered Pillsbury Winthrop Shaw Pittman, and Dentons and McKenna Long & Aldridge, which this autumn voted against a tie-up after talks kicked off in September.

With 2014 just round the corner, Dundas & Wilson managing partner Caryn Penley told Legal Business: ‘It’s something firms will have to do in order to compete in the market as firms continue to consolidate.’