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Together we thrive

16 April 12

Rather than defensive moves, the recent mergers in the Scottish legal market appear to be springboards for growth. We interview those involved

by Peter Nicholson

Overcapacity in the market. A defensive move. Efficiency savings, quite possibly at the expense of fee-earning jobs. It has been predicted for many months that such considerations make the Scottish legal sector ripe for “consolidation” by way of mergers. Now, within the past couple of months, several deals have come into the open. But they appear to paint an altogether more positive picture. What lessons can others take from them?

There is a lot more happening than meets the eye. Greig Honeyman, whose Fyfe Ireland recently became part of Tods Murray, says he and his partner Drew Taylor were approached by up to 25 other firms in the 15 months before they went into talks with Tods.

“I think we were attractive because we had a quality client base – a lot of companies would identify us as being an good bolt-on, for want of a better expression,” he comments, adding that there is much more going on: “Behind the scenes, the amount of jockeying for position that is not in the public domain is quite significant. And there are lots of people out there semi-brokering these matters at the moment, individuals who are taking it upon themselves to get round the various legal firms and see if they can bring it to be.”

A deal conceived

With the mergers featured here, however, there has been some background connection to act as a catalyst. When Honeyman and Taylor finally decided that it might be worth sacrificing their independence for growth via merger, it was through personal acquaintance with Tods’ chairman David Dunsire that discussions began in earnest.

Similarly, when small practices Kirklands of Perth and Orme Business & Property Law of Falkirk decided to become one, it was on the back of Orme being a client of Kirklands’ Instant Office online cashroom service run by partner Graham Gibson.

“If you like, I’ve had a trial run with Graham on the compliance side and on the cashroom side, so I probably know more than the average partner joining a firm,” says principal Alan Orme. “All told, it’s been about 12 years that I’ve known him; in the last three or four years, we’ve worked closer together anyway.”

Client pressures also played a significant role in each of the two recent larger-scale mergers. When Andersons LLP decided to move under the umbrella of DAC Beachcroft, it was client led, according to founder and chairman Gilbert Anderson, as both firms act for major insurers with global interests. Similarly, the deal that brought McGrigors and Pinsent Masons together was, as McGrigors’ Kirk Murdoch puts it, influenced on both sides by clients saying: “We want to use you more; how are you going to resource that?” He adds: “What this merger gives us is a compelling answer to that question and the ability to say ‘and here is a range of other things we can do to help you’.”

Accepting that neither firm was in a position where it needed to merge, he comments: “It isn’t just about size for its own sake. Both firms have had positive experiences helping our clients grow into new markets and we want to be in a position to do that more. Our clients think globally, so we must do too, and that means investing time and resource in knowing our clients and providing them with access to credible advisers on the ground.”

On the Pinsent Masons side, Scottish head Fraser McMillan describes McGrigors as “a missing piece of the puzzle in terms of our UK platform”.

Buzz factor

A sense of excitement has certainly gripped those involved in the bigger moves, as they face challenges and opportunities on an ever-larger scale. “What really excites us about this deal, and what makes it different from some in the market, is the potential we see for growth,” says Murdoch.

“Pretty early on in our talks with Pinsent Masons, I think we all recognised that there was space in what is an already crowded legal market for a firm of our combined scale and reach that would be compelling to a great number of clients from both firms… We’ll also create a platform for growth and investment which allows us to develop alongside our clients.”

The mood has spread to the staff, Murdoch adds. “I know a lot of legacy McGrigors people are excited by the prospect of international work on a more regular basis – and a few are busily eyeing secondments in places like Hong Kong and Singapore!”

Similarly, Anderson is “very excited about the opportunities for Andersons as a whole, for growing the business in Scotland and getting more into varied other aspects of insurance such as professional negligence, that kind of thing, more than we do at the minute”. No question, he adds, but that it’s growth driven: “That’s the whole point about it.” Again, it opens up real career opportunities for Andersons’ people.

Patience pays

Honeyman, who joined the former Bird Semple Fyfe Ireland and saw its constituent parts “separate with a view to divorce and then divorce”, claims he could write the book on what works and what doesn’t in a merger. He believes there is now a greater willingness among the profession to understand that mergers are generally a good thing. “I think in the past they were maybe perceived as something negative because some didn’t work out as they were intended to, but we’ve gone beyond that. I think the profession has grown up and it’s come of age.”

But he counsels patience for those looking for a partner. “Essentially, you’re looking for a good fit at all levels – for your clients, your staff and your partners, and that’s what we’ve got here at Tods Murray. I can say that hand on my heart.”

Or, as Gibson puts it: “You can have as many contracts as tight as you like; it’s down to the personalities and the people.”

Having run Fyfe Ireland “along the lines of a larger firm”, with time recording, up-to-date technology, good access to information, and good billing rates, Honeyman says that integrating into the larger firm was a fairly easy process. “If there’s a message there, probably for small firms that haven’t had discussions or haven’t taken them all the way, they shouldn’t really be scared of a merger. If they want to come and talk to me, I’ll be happy to talk!”

Without the global positioning of the larger deals, his own merger still reflects strategic thinking on both sides. For Tods Murray, it represents a good acquisition that can only add to their brand. For Fyfe Ireland, though the outlook as an independent player “would have been perfectly fine”, Honeyman asserts, “with everything that’s happening to the profession, you’ve got to be sensible about the future, your own succession planning. I’m 56 this year and Drew is 57 and these things come into the frame as well. Coming out of a recession is a time when you do need to make sure you can bring in new blood, and I think that will be an interesting feature of the profession in the next three to five years, because there is going to be a scurrying around for quality people to do quality work”.

Better than single

Meanwhile, the embryonic Kirklands Law Network heralded by the Orme merger sees both immediate and longer-term strategic benefits from its new alliance. “On the economic side,” Alan Orme comments, “the premiums to Marsh are reduced because sole practitioners have a higher loading, and it also allows us to remain on the panels of the many lenders who are not allowing sole practitioners to act, so these are immediate practical effects.”

Then there is the ability to share the burden of compliance, duties already made easier by Gibson’s system. “Instead of us all wearing 10 hats, Alan and I are now wearing only five hats each,” Gibson adds. “As it grows, we’ll share the hats about. That’s the benefit of being part of a bigger firm.”

When asked if there have been any practical problems, he responds: “Really nothing but positives so far. Things like we’re able to give cover for holidays and so on. I know a lot of sole practitioners who just don’t take holidays for that reason. And there’s a whole bunch of incidental benefits. We each have a trainee - Megan’s doing a lot of commercial work, Sylvia not so much, so she joins Megan on some projects. There’s that sort of strength in depth that you get from linking up, because folk are easily transferable around the network, whether it’s for the benefit of the trainees or because three of Alan’s staff are off.”

Perhaps most importantly, given the different sectors in which the two offices operate, it reduces the amount of work that has to be turned away as being beyond the firm’s expertise.

Excitement about future prospects is not confined to the big operators. Despite the tough business climate, Gibson says: “I’m actually quite positive, quite excited about a couple of opportunities that have come our way recently. You can look at the whole market, but you’re really only concerned with what’s happening within your own practice unit. But you’ve got to make your own luck. You can’t sit on your hands, you’ve got to go out there and make it happen.”

Having united two offices at a distance, Gibson and Orme are looking at further approaches from suitable (debt free for one thing) practices elsewhere in the country, while insisting they won’t be rushed into anything. “We’re not looking to take over the world,” Gibson cautions. “The aim is to make each individual practice unit more streamlined, more efficient, more profitable, more sustainable, something that will then have a much larger value when individual directors are looking for an exit route, because if people know it’s part of a well-run network, that is worth so much more than an individual law practice on its own.”

Scottish identity?

Taken together, these different deals say quite a lot about the changing legal services market – including the blurring of national borders. Of the McGrigors-Pinsents tie-up, Murdoch says: “I think this deal will give pause for thought about the nature of the legal services market in Scotland. There is really no such thing as a ‘Scottish Big Four’ any more, because so much of the work is national and international. What we are creating is an international law firm, with significant headcount in Scotland, which can play a pivotal role in helping Scottish businesses grow abroad. What that also means is that we can take the professionalism and quality that undoubtedly exists in the Scottish legal services market and put it onto an international stage.”

Again Anderson reflects this, when asked about the future if Andersons had remained independent: “You’ve got to have some vision about where you are going, and I believe we have to look beyond these shores, ironically to attract work to these shores. So we would have been incredibly confident, we’re very proud of what we’ve achieved so far, but you can’t stand still. If you plan to stand still, you’ll go backwards.”

He for one might have been expected to be reluctant to see the firm he founded lose its distinct identity. “Lots of people have asked me that, and I wouldn’t be a human being if I didn’t have a tinge of sadness there, but I’m not precious about that at all. I can well understand branding nowadays is a significant aspect of commercial life and the DAC Beachcroft name is one that’s very well known in the insurance world. You don’t want to complicate and confuse matters, so it’s not a major issue for me.”

Likewise, at McGrigors, Murdoch observes: “I suppose inevitably people will be a little sad to see the name disappear, but it’s all part of our evolution and the feedback from clients about what we are doing has been overwhelmingly positive. Pinsent Masons has a strong brand at home and, crucially, internationally and we are very happy to become a part of that. I tend to view it as not dissimilar to what we saw in accountancy, when people like Thomson McLintock became part of KPMG, which in turn became a truly global organisation.”

The bottom line

At the end of the day, each of our respondents’ focus is on how best to meet clients’ needs. Murdoch puts it this way: “We have a very clear vision of where we want the new business to be, staying close to our clients with a combination of market-leading coverage in the UK and a strong presence across continental Europe and key growth markets in Asia and the Gulf.”

At the other end of the scale, for Gibson also, facing the twin hurdles of growing specialisation and increasing regulation, “even if you are not doing the work yourself, the most important point is that you know clients are in good hands and that they will be looked after”.

Honeyman observes, from a general perspective: “If smaller legal firms are considering going into discussions, and a lot of them will have had discussions, my comment would be to encourage them to think laterally about their position and look ahead, think what they’re trying to achieve for their clients and try to remain client focused. That’s a bit of a cliché, but the one thing you’ve got to keep sight of at all costs is that you’re only as good as the work you’re doing for your clients. Because you’re not anything without your clients.”

He concludes: “Equally, legal firms should take their own advice as well – they should take advice from others, and not be scared about taking that advice. Even relatively large firms should be taking advice, because it does put matters into perspective, especially if you’ve been through it. It’s an interesting thing to do.”


Small practices combine: Kirklands/Orme

The two smallest firms featured are Perth-based Kirklands and Falkirk’s Orme Business & Property Law, owned respectively pre-merger by sole principals Graham Gibson, who does mainly property work, and Alan Orme, whose interests are more in the company/commercial sphere. The two joined forces in February this year while each continuing to practise under their previous business names, forming the beginnings of what is being styled as the Kirklands Law Network.

Though the two offices are over 40 miles apart, the union has been made effective by an IT platform that provides centralised cashroom and client file access – Gibson already runs a cloud-type service, Instant Office, for practices seeking to outsource cashroom and other services. The combined business has a staff of 15.

The firm is considering approaches from other practices interested in joining the network.


Mid-size goes multi-national: Andersons/DAC Beachcroft

The most recent news was the surprise “joint venture” arrangement that will see, from 3 September 2012, 12-partner (40 fee earner) Andersons Solicitors LLP become the Scottish arm of DAC Beachcroft, itself formed only last November when Davies Arnold Cooper completed a merger with Beachcroft, creating a firm with a presence in North and South America and Asia-Pacific, as well as several locations across Europe, either under its own name or through “best friend” arrangements.

Here the driving factor was a common strength in insurance-related litigation. Andersons’ founder Gilbert Anderson (pictured) explains: “The insurance world is probably one of the largest, if not the largest, single user group of the courts, and the notion of being able to offer cross-border legal services from a strategic standpoint was one that very much appealed to me.”

The existing Andersons Solicitors LLP will remain as a legal entity, and is applying to the Law Society of Scotland to achieve Scottish multi-national practice status, with a view to certain members of Andersons becoming members of DAC Beachcroft and vice versa. “People talk loosely about merger and I don’t have a difficulty with that term, but the separate entities will still exist,” says Anderson. “In every practical way it will be a merger, but that’s how we see the structure.”


Small combines with big: Fyfe Ireland/Tods Murray

January saw Fyfe Ireland, a two-partner private client Edinburgh firm with a history dating back to the 1830s, being acquired by Tods Murray, whose Edinburgh and Glasgow offices between them now house some 35 partners and 183 staff, providing a full range of legal work.

All eight of Fyfe Ireland’s other solicitors and all six support staff moved to Tods’ Edinburgh premises, the integration being all “done and dusted” within weeks.

The merger boosts Tods Murray’s private client team, Fyfe Ireland’s practice having been a mix of private client and family business, as well as litigation. The firms hope it will create a platform for further growth in this sector.


Top of the scale: McGrigors/Pinsent Masons

News broke in January that McGrigors, currently the biggest Scottish-based practice by turnover but already styling itself a “national law firm”, was on the point of concluding a deal with international firm Pinsent Masons that will create the 12th biggest practice in the UK by turnover (some £300 million) when it takes effect on 1 May, with about 350 partners and more than 1,200 lawyers in the UK, and offices in the Middle East and Asia-Pacific regions. It also plans to open European offices in Paris and Munich later this year.

Both sides are currently working flat out on integration of teams and systems, but apart from one Manchester-based construction law team which moved to another firm due to conflict issues, report that there have been “remarkably few client conflicts given the size and reach of both organisations”.

Fraser McMillan, head of Pinsent Masons in Scotland, says: “Fortunately, we do actually use some very similar systems and the integration process itself really gives us an opportunity to analyse where the biggest opportunities lie to build on the success and expertise of both firms.”

He also comments: “We have a very clear vision of where we want the new business to be. Pinsent Masons will be a law firm which will not be constrained by borders. Our focus is on ensuring we are at our clients’ side as they build their business and winning new clients, wherever that may be.”

 


Online extra: some more quotes

Graham Gibson: “We need to get ourselves into shape so that we can compete… ABS has already happened for high street practitioners, particularly if you’re a high street lawyer offering property related or executry services. The banks are pushing it already, particularly the Co-op – they are very active in trust/executry business, but effectively it’s anything with a high margin. You just have to look round the various banks – try going into the Bank of Scotland and paying in some money and see if you can get out without being sold a will.

“For a lot of firms that has been business that just came to us, but times have changed and we have to react and be proactive about it so that we are ready. These big institutions have massive budgets that we can’t compete with on that front. But we can compete on service, on expertise, and that personal touch with local folk so I think that’s the benefit of having people across the country [in the network], because they’ll have people locally that will be much happier speaking to them than speaking to a call centre in Glasgow.”

Greig Honeyman: “Some firms were merged at the end of particular partners’ lives and they were always kept separate, they didn’t integrate fully. That’s not going to happen here. We’ve come in and I think we’re pretty close to being fully integrated as we stand at the moment.”

“I think [the business climate offers] opportunities for all legal practices at the moment, but sadly some may fall by the wayside as well. But then there have been a lot of firms withering on the vine for quite a long time up and down the country. I think it’s still going to be tough, and if by tough it means that people are not complacent then that’s a good thing.”

“If people are genuinely worried about competition from ABSs then I think the competition is the least of their worries.”

Gilbert Anderson: “We’ve had approaches from other firms in the past but this one just felt right for all the strategic reasons I’ve mentioned. I feel very comfortable about the ethos and the culture as well. These are the very touchy feely things you can’t describe.”

Fraser McMillan: “By being based in all UK legal jurisdictions and having a larger international presence, our people can only benefit from the increasing amount of opportunities within the firm.”

“If anything the merger has actually really helped to galvanise people at both firms. Everyone likes to be talk of the steamie and its really bringing out the best in people.”

Kirk Murdoch: “As a combined entity, the new firm will have greater resources to invest in training and development to facilitate [the ability to carry out market-leading work], and we are spending a lot of time thinking about how we can ensure that our lawyers remain experts in the sectors in which they operate as well as the law, because we know that’s something which benefits our people as well as our clients.”

“The combined firm will give us greater opportunity to invest in growing our international network. As the needs of our clients change, we need to have the right mix of expertise and geographical reach to support them. The combined firm ensures that our clients will have market-leading advice under one roof which is not only adroit from a legal perspective, but also highly relevant to the market in which the client operates.”
 

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