Cards on the table

Wragge & Co’s decision to launch in Paris sees its notoriously prudent partnership taking a rare gamble. Legal Business reveals the ambitious new strategy now underpinning Birmingham’s largest legal powerhouse

If you’re wearing a suit when you meet Quentin Poole you’ll feel overdressed. He looks more like a teacher than a lawyer: no jacket, top button undone, no tie. The softly-spoken senior partner of Birmingham’s biggest firm perfectly personifies the self-styled benevolent culture of Wragge & Co, a culture that ensures it is a permanent feature on the Financial Times’ best places to work list. But, like the firm, Poole’s unassuming demeanour masks a resolute efficiency that it is a mistake to underestimate. Wragges’ business ambitions are far from modest.

Boasting a profit margin of 31%, the firm is the 15th most efficient in the current LB100, an impressive performance for the UK’s 26th largest law firm by turnover, and especially in a time of poor financial results – it recorded an eye-watering 41% margin the year before. Despite its policy of fiscal responsibility, Wragges has suffered like everyone else. In fact, with two redundancy consultations and a 17% crash in revenues over the 2008/09 financial year, it could be argued that the firm has had a more difficult time than most. But while other national players have been implementing cash calls and suffered the ignominy of banks making their business decisions, Wragge & Co has been quietly sitting on its £20m war chest and discussing investment opportunities.

‘It is in the Wragge & Co bloodstream to be very conservative financially,’ Poole explains when asked how the firm has managed to retain its reserves throughout the current turmoil. ‘We’re laughed at by our accountants for being so conservative, but the fact is that we’ve been through recessions, pain and angst, and we’ve been badly affected by changing our client base to focus away from the Midlands, but we still have cash in the bank and no borrowings.’

So when an eight-partner team from ‘best friend’ Lefèvre Pelletier & associés approached Wragges with a view to breaking away from the French outfit, the partnership felt it couldn’t say no, despite the unsettled financial backdrop. ‘We take the long-term view,’ Poole says. ‘We’re not a FTSE 100 company. We don’t have to make decisions to protect the next quarter’s results – we’re very focused around long-term results.’

It could just be the biggest decision of the firm’s 176-year history.

Upping the ante

In Poole’s first meeting of the year with Legal Business, Wragge & Co has decided to go public with a new business plan. Already six months through what will be a five-year strategy, Poole summarises it in two points: to hit £200m gross fees by 2014, against £104.3m in 2009, and to climb into the UK’s top 20 biggest law firms. Clearly, to achieve those aims the firm needs to look outside its traditional hunting ground. The Paris launch is the first strand in Wragges’ decision to truly internationalise its business.

While broadly eschewing the office-in-every-outpost approach in favour of referral relationships, the firm does field niche operations in Brussels, Guangzhou and Munich. However, in comparison to taking on ten new equity entrants in one go, its previous forays into overseas markets have been positively muted, with UK partners usually allocated to lead the offerings. Intellectual property specialist Gordon Harris spearheads the firm’s China presence, for example, an office that Poole admits opened in 2007 on a ‘speculative’ basis and is now building up slowly. So this latest move marks a real step-change for the traditionally cautious firm that is still notably yet to make a splash in London. ‘I do think Wragges doesn’t get the credit it deserves for London – we have 22 partners based here full-time,’ says Nicola Mumford, London managing partner. Admitting that the ‘big in Birmingham’ tag can be a hindrance, Mumford adds: ‘I also think because we haven’t done an Addleshaws and moved into London on a huge merger, we haven’t won that attention. Steady, organic growth is less newsworthy; although when you say we were 18 people in 2000 and now we’re 170 that sounds far from slow.’

‘Wragge & Co ticks all the boxes. They’re always among the best for value, and because they’re based outside London you feel like you’re getting something different.’
Wragge & Co client

But maybe a high-profile London office isn’t necessary? ‘Nobody believed that we could grow to 1,000 people in Birmingham, and transform our client base away from Midlands heavy industry towards FTSE 100 companies the way we did,’ Poole says. ‘But between 1995 and 2002 we transformed Wragges from a regional firm into a national firm from Birmingham. Now 20% to 25% of our workflow is international, so the next step is to grow that base. In five years’ time the objective is that more than 40% of our work will be international.’

Wragges is convinced that it can launch a successful international offensive from the UK’s second city, since, according to Poole, 15% of the firm’s workload already originates from US-based clients and that work spreads across Europe, making a French platform particularly attractive. Germany is also an important conduit for instructions, and Wragges boasts an IP boutique in Munich and excellent links with Graf von Westphalen, but Poole doesn’t envisage – ‘certainly not within the next three years anyway’ – further expansion there. Instead, new corporate rainmaker Bijan Sedghi is using his excellent Middle East links to help the firm establish an office in the Middle East, most likely in the United Arab Emirates, which Poole sees as the next step towards building into North Africa. With so many irons in the fire, there is a danger that the usually careful Wragges is over-extending itself.

Fait accompli

The business case for Paris immediately made it a done deal for the partnership at Wragge & Co. ‘Lefèvre had some gaps, they were by no means full-service, so this gives us the opportunity to build a stronger offering there,’ Poole says. ‘We’re actively looking at the Middle East, and that connects very well with France and opens up the triangle with North Africa. Paris is cost in the short-term, but the money is coming out of our savings and we’ll make it back very quickly.’

‘Paris is cost in the short term, but the money is coming out of our savings and we’ll make it back very quickly.’
Quentin Poole, Wragge & Co

Eight of the new hires are already partners and two associates will be made up on arrival. Tax specialist Pierre Appremont and corporate partner Simon Lowe will manage the new office and, in line with French law, can join the firm with their client list intact. ‘It’s definitely not a big risk,’ says Michael Whitehouse, Wragges’ head of international. ‘From the first year of operation this new office will represent 15% to 20% of our business, and that’s not taking into account new clients who we can bring to France. We’ll feel the financing of the new office, but that’s it.’ Poole says it will add at least £10m a year to the bottom line from year one. It sounds too good to be true.

Looking at Lefèvre’s specialist areas, it seems the investment could be bigger than Wragges is letting on. The firm is a top-tier outfit in construction, and the team hired is heavily hedged towards real estate and M&A, a far from helpful bolt-on in the current climate. Notably, the firm doesn’t have a strong reputation in corporate or Wragge & Co’s traditional overseas strength of intellectual property. However, Poole says the firm is looking to ramp up in international projects, both infrastructure and energy, with a push into oil and gas to really cover the Francophone territory. So it could be a good fit going forward if the firm can continue to invest in construction firmwide and make that international offering credible.

Show your hand

On the projects side, Wragges has some excellent public sector clients, particularly in private finance initiative work where it fields a nationally respected practice and has advised the Ministry of Defence on a series of projects, most notably advising on the mammoth £12bn Future Submarines project. However, it is only recently that it has been able to offer an experienced international project finance capability. ‘We had been trying to recruit a partner into project finance for years, but nobody was moving. Then we get a bit of a downturn and Kieron became available,’ Poole says, referring to the 2008 arrival of finance specialist Kieron Dwyer as partner, formerly a senior associate at Clifford Chance. ‘Are we losing money in the short term?’ he adds. ‘Yes, but it’s a long-term investment. We could never have built a project finance team in a boom.’

In addition to project finance, Poole says investing in corporate is a priority for the firm. It has needed to be done for a while – DLA Piper’s traditionally weaker corporate finance team in Birmingham has edged above the firm locally in recent years, with names such as Jim Lavery and Chris Rawstron now more recognisable than the main players at Wragge & Co. Former corporate partner Andrew Lawton Smith’s recent decision to quit the Wragges partnership for a director role with data technology provider Mercato Solutions has further highlighted the gaps. ‘They’ve undoubtedly lost some ground in the corporate market in Birmingham,’ says a senior corporate partner at a rival firm. ‘They still haven’t replaced Andy Stylianou and Maurice Dwyer, who moved to the London office five years ago. It’s a shame, Stylianou and Dwyer may be struggling in London, but they were big characters locally.’

In terms of heavy hitters, the rival partner remains unconvinced that Wragges can afford to be complacent in its home territory. ‘[Corporate head David] Vaughan’s a nice guy, but he must be doing work outside the region, because we never see him,’ he says. ‘We haven’t seen Wragges on the private equity side in years, of course. Their focus is the plc market, but that’s dead at the moment.’

The appointment last year of corporate rainmaker Sedghi, formerly chair of BI Group, may change all that. Poole now wants to lure more names to the London office. While the firm is pouring money into a state-of-the-art Birmingham HQ, expecting to move into the new Snow Hill development at the end of 2012, London remains a parachute office in the eyes of the market, with no real autonomy. The firm’s core corporate, real estate and IP practices are all concentrated in Birmingham, with IP head Harris and corporate head Vaughan based in Birmingham, and property head Adrian Bland splitting his time between the HQ and the capital.

Wragges has just extended its lease in London, but with no long-term commitments and a very public intention to find a merger partner in the city. ‘You can’t build a strategy around a merger,’ Poole says. ‘We’re absolutely up for one, but our strategy is to deliver on being top-20 regardless. There is no doubt that a merger could be transformational – but we’ll get to our goal with or without it.’

‘Culturally, redundancies were the hardest thing we’ve ever had to do. There was shock, but ultimately you make the survival and fitness of the business the priority.’
Quentin Poole, Wragge & Co

Poole is adamant that only a London merger would be palatable. The ultra-prudent Wragges sets no store by the regional model of further offices around the country, which dramatically lowers the profit margin at higher-ranked national rivals such as DLA Piper (21%), Eversheds (17%) and Pinsent Masons (17%) – at 26%, even Addleshaw Goddard falls five percentage points short of Wragge & Co.

‘We could do a tie-up with a tiny boutique with three or four partners, but we have also thought quite hard about a 40 to 50 partner firm, and we’ve looked at one or two candidates,’ Poole says. ‘I hasten to add, we haven’t got any negotiations on the table with anyone at the moment.’ Looking at the LB100 London Midsizer group, one of the main contenders in terms of financial efficiency could be Watson, Farley & Williams, which had an excellent year in 2008/09 and recorded a 23% rise in turnover to £72.5m. Poole has hinted at the firm in the past and certainly the business lines would seem compatible, as energy and projects would be consolidated. Wragges would present Watson Farley with a public sector base while acquiring shipping and insurance practices. Rumours have also surfaced regarding a past serious consideration of LG. However, a union between two firms heavily exposed to real estate would appear to be an investment too far in the current climate, although improving Wragges’ position in property remains a strong focus.

‘The firm has listed several step-change priorities across core sectors,’ Poole says. ‘Getting into the institutional investment market is a key objective for us. It would really help us if we could not just recruit one or two laterals, but one or two teams. So we’re actively looking at investing in property, even if that will affect profitability in the short term.’

Stick or twist

Wragges is unashamedly using its savings to hoover up quality opportunities, and working the downturn to its advantage. But it’s a dangerous game for a firm that is already on thin ice. While it does have savings, the firm’s revenue plummeted by 17% to £104.3m in 2008/09, the second steepest drop in the top half of the LB100 – only private equity specialist Travers Smith fared worse.

While the profit margin remains enviable, the squeeze in turnover translates into a 12% drop in revenue per lawyer to £222,000. And it looks like more bad news is set to come following Wragges’ half-year announcement, which reveals figures are 3% down on the same period last year, despite the cost savings brought about by two rounds of redundancies. Poole remains sanguine. ‘We have transferred our client base into major FTSE 100 names and obviously that’s fantastic,’ he says. ‘They are high-profile clients that can produce a very high amount of work and they help us to push up that glass ceiling.’ But he adds: ‘The downside of the heavy focus on the FTSE 100 is that they often have large legal departments, so during a recession they have less work, and they ship less work out – so we are disproportionately hit by a downturn.’

Poole believes that when the recession begins to lift and clients start activity again, the firm will have increased its market share by a substantial margin. Recent client wins include FTSE-listed SmithsNews and, speaking to in-house counsel, it seems Wragges is a good name to have on your panel. ‘Wragge & Co ticks all the boxes,’ says one client, who preferred not to be named. ‘They’re a good firm; they’re always among the best for value, which pleases the board, and because they’re based outside London you feel like you’re getting something different.’

If it ain’t broke

Wragge & Co’s unique selling point has always been its Birmingham headquarters, and its strategy has evolved around that difference. Its all-equity partnership sends out the message of top-level consistency and quality despite its regional presence, and its ability to win work in London and ship it up the M1 has given it a sustainable price advantage over major City firms. Being outside London has also gifted the firm an enviable opportunity to sell itself on work-life balance and a more relaxed culture. So the biggest risk in further expansion is perhaps that it will alter its DNA into something less distinguishable from all the other Anglo-Saxon, international-facing firms.

‘I don’t think culture has anything to do with geography – we have 170 people in London now and they are every bit a part of our culture as those who are based in Birmingham,’ Poole argues. ‘I don’t think geography is a relevant issue, but I grant you that size is relevant. As you get bigger you have to ensure that the people you recruit have bought into your attitudes.’

All of the ten new Paris partners will be recruited directly into equity partnership, a major difference from most national firms who have ‘local partners’ or just completely separate firm balance sheets. In addition, there is a system in place that actively rewards partners who share opportunities, allocating a percentage of profits to partners who are ‘playing a team game’. For example, you would be rewarded for sharing your client with someone who is better placed to do the work, which is a far different ethos to the ‘eat what you kill’ philosophy pioneered by aggressively profit-centred firms such as DLA Piper, and which is a useful tool in the mission to ensure that the firm’s identity isn’t diluted as it goes global.

‘We could do a tie-up with a tiny boutique with three or four partners, but we have also thought quite hard about a 40 to 50 partner firm.’
Quentin Poole, Wragge & Co

The firm has changed though. As one of only a handful to implement more than one round of redundancies, Wragge & Co had to put its business needs before its collaborative approach, and Poole admits there was disillusionment. ‘Culturally, redundancies were the hardest thing we’ve ever had to do,’ he says. ‘A lot of people were thinking: “Wragges has really supported me and now they’re making me redundant.” There was shock, but as a firm we recognised that, ultimately, you make the survival and fitness of the business the priority. We did our very best, and we carried some capacity, but we had to do it to have money to invest.’

To become a top-20 firm, Wragge & Co will have to continue to adopt elements of the more ruthless culture seen in the City, and taking ten partners from a former ‘best friend’ firm is certainly a step in that direction. Going forward, Poole is hedging his bets somewhere between evolution and preservation of the firm’s values. ‘One of the major challenges is maintaining whatever is distinctive about Wragge & Co,’ he says. ‘We need to build on that and develop it, but also to change it as we become a different firm in different markets. We will manage it because it’s our number-one priority.’ LB