Sarah Downey reports on the property leader’s attempts to position itself.
With its five-year financial performance standing out as one of the worst of the top 50 in last year’s LB100 and at least one abandoned merger talk under its belt, Nabarro is perceived by a number of clients and rivals as a firm in need of change.
Heavily dependent on a mixture of high-end but also commoditised property work, the firm has dropped down the UK legal rankings from its 2008 high, when it stood in 23rd place on the back of a revenue increase of 16% to £142.4m.
Last year it fell to number 30, with revenue coming in at £116.3m, equalling an 18% drop over the previous five years. One client observes: ‘I have no idea what its strategy is. We are a good client but no-one has ever told me the strategy. With some firms it’s like going into Tesco where everything is bright and shiny on the shelves but with Nabarro the shopkeeper has to go out to the back storeroom.’
The firm declined to give an indication as to what its 2013/14 revenue will be, but at the half year point it was almost flat, up from £52.3m to £52.5m.
Largely on the back of a partner restructuring led by former senior partner Simon Johnston in 2011/12, which saw a cut of 14 equity partners, the firm’s profits leapt by 29% last year to £427,000.
Senior partner Graham Stedman, who took over from Johnston in January 2013, says: ‘We’ve taken a responsible approach to managing our business. The restructuring was about making sure we had the right partners doing the right work.’
Certainly during Stedman’s leadership there have been some highs. These include the launch of Nabarro’s third international office in Dubai earlier this year, plus major panel wins, including UBS, Bupa, Lloyds Banking Group, Lafarge Tarmac, Veolia, and Aviva Investors.
It has also made a few notable hires, including Osborne Clarke employment partner Richard Brown last September; IT and disputes partner Lee Gluyas from DLA Piper in March; and real estate and healthcare partner Candice Blackwood from Berwin Leighton Paisner in early May.
However, the firm is still perceived as unable to diversify, with one ex-partner commenting: ‘It’s an unbelievably good property firm but a property-orientated business. It has to find a way of expanding into corporate-related work. It had reasonable success at bringing in laterals but what it was not able to do was attract good corporate laterals.’
Even in its core real estate field, where Amanda Howard is recognised as leading one of the few truly high-end practices, a regular client comments: ‘They have some incredibly good lawyers but they can’t do things in any other way. Where other firms are innovating they are not.’
The announcement of a Manchester office launch in May, with the hire of Addleshaw Goddard’s real estate head Mark Haywood, and partners Monica Brij and Nathan Jansen, will go some way to answering that criticism. It will also give the firm another option for servicing the less profitable asset management work it currently undertakes in London.
Internally there are signs that change is afoot: in mid-May Nabarro confirmed it was preparing for its first managing partner elections in 15 years. Andrew Inkester, the present incumbent, is expected to stand again.
However, the lingering question of that elusive merger is never far away. Addleshaw Goddard and Nabarro called off their merger talks in early 2013 and it is understood that Wragge & Co looked at the firm as a contender before its decisive talks with Lawrence Graham.
A key sticking point for both firms is understood to have been Nabarro’s projected pensions deficit, which now sits at a total of £24.7m. The firm’s defined-benefit scheme was closed to new entrants in July 2001 and to future accrual for active members below 55 on 2 November 2004, with the firm having agreed a recovery plan of £750,000 per annum to eliminate the shortfall.
However, Stedman says: ‘We’re a robustly and soundly managed firm – one of the best in the top 50. Our finances are strong, we’ve no debt, we don’t delay payment to our partners in their profit shares and we have a strong cash position. We’re pretty comfortable with that.
‘It’s not for me to comment on the views of other senior partners or how other firms view Nabarro as a potential merger partner. As with any organisation that runs
a defined benefits scheme, we make a commitment every three years, in agreement with trustees and the pension regulator, to contribute an additional sum (currently less than 1% of our turnover) to our pension scheme to address a projected deficit for accounting purposes. If you take that liability on an annual basis and compare it to a firm that has millions worth of debt, we look quite good I would have thought.’
It’s a fair comment, and there are some wild claims regarding Nabarro’s pensions deficit that overplays its significance if the right merger partner were found.
However, Stedman rightly observes: ‘A merger is not a strategy in itself. Otherwise, you never make any decisions; you’ll always put things off because you think it will cure everything.’
Nabarro showed Legal Business numerous positive client testimonials and pointed out that it has an active client feedback process, but from the perspective of one of its larger clients, taking steps to innovate and be more outward facing would be an entirely achievable step in the right direction.
‘In-house people are looking for something more dynamic,’ the client concludes.
‘It has some very good lawyers, but it needs better leadership.’
sarah.downey@legalease.co.uk