LB100 North – Northern Soul

The line-up of North peer group firms has changed again. Following the departures of DWF and Hill Dickinson to the Major UK group last year, Weightmans joins them after 2011’s merger with Mace & Jones and the acquisition of Vizards Wyeth’s insurance team propelled the firm’s revenues into the big league.

Last year Weightmans was already £10m ahead of its nearest rival, Pannone. This year it is over £30m. Keoghs now tops this group with revenues of £47m.

But even without Weightmans, there is still a large gulf between the top firms and those bringing up the rear in this peer group. Dickinson Dees is now the largest firm by fee-earners in the North and its revenues are up by a modest 1% to £46.1m. This means the firm has arrested a three-year slide in revenues but is still some 23% behind its 2008 peak of £60m. Its five-year compound annual growth rate (CAGR) stands at -4% – the worst in the group behind Cobbetts.

A 7% drop in fee-earner numbers and a 7% fall in non-lawyer staff, following a 15% increase in lawyers the previous year, no doubt contributed to a reduction in costs that led to the firm reporting a 3% growth in net income to £8.2m. The firm attributes the fall in headcount to natural attrition and hasn’t undertaken any redundancy exercises in the past year.
‘We’ve just chosen not to replace staff in certain areas where we didn’t need to,’ says managing partner Jonathan Blair.

However, the firm’s profit per lawyer (PPL) of £28,000 is way below the group average of £43,000, which means that cost cutting at the firm has only gone so far. PEP is up 34%, easily explained by a 23% drop in the number of equity partners from 36 to 28.

The firm has not been afraid to make some key lateral hires to bulk up its real estate practice in the last year, notably hiring Martin Stacey from LG and Mark Owen from Pinsent Masons to bolster a team that accounts for 25% of the firm’s revenues. Owen will join the firm’s new Leeds office, which replaced its York offering at the start of the year. Blair also points to the firm’s wealth management practice as a success story, accounting for around 12% of revenue. ‘We’re heading in the right direction,’ he says.

Pannone’s revenue is down for the third successive year, falling a further 3% to £46m. In an interview with LB a year ago (see ‘Brought to a Holt – Pannone – September 2011’, LB217), managing partner Emma Holt predicted an increase of 25% in profitability in 2011/12. Net income has increased but by a rather modest 3% to £7m. Holt simply says that ‘profits are up due to taking cost out of the business’, mainly by instituting ‘lean processes’ to ‘make the business more cost effective and to use resources correctly’. This new efficiency in resources will explain the 16% reduction in non-lawyer employees at the firm on last year while at the same time increasing the number of fee-earners by 8% to 242.

However, the firm still has the highest cost per lawyer in the peer group, despite Holt’s ambitious restructuring plans when she took control two years ago. Holt says: ‘PEP has risen by 6% by concentrating on doing work properly and making cost savings.’ The increase could also be helped slightly by the fact that the firm has one fewer equity partner this year.
Pannone’s Manchester rival Cobbetts has continued its trend of increasing revenues that began last year following two years of declining turnover. However, the firm has the worst five-year CAGR in the group, a statistic which no doubt would have been remedied had its proposed merger with fellow Manchester firm DWF gone ahead earlier this year. Perhaps one of the reasons the tie-up didn’t happen is the disparity in profits: Cobbetts’ PPL at £35,000 is £5,000 better than its Major UK neighbour.

Meanwhile, another North West firm, Brabners Chaffe Street, has also reported a 3% increase in revenues to £31m, matched by an equal increase in net income. Managing partner Mark Brandwood is more than happy to accept this level of growth. ‘If you think that the economy over that period hasn’t grown, we’ve done better than the economy has,’ he says.

The two standout performers in this group are both Yorkshire firms: Walker Morris and Gordons have markedly higher PPL than the other firms in the peer group. Walker Morris’s stands at £68,000 while Gordons’ is an outstanding £81,000. This is even more striking when compared to Ward Hadaway’s PPL of just £16,000.

Ian Gilbert, managing partner of Walker Morris, thinks that client demand for value for money is benefiting his firm. ‘We get direct contact from clients who would normally go to City firms who are looking for quality outside London,’ he says.

 

 

Gordons, with an 8% increase in turnover year-on-year to £25.3m and a five-year revenue CAGR of 6%, posted year-on-year revenue growth above the peer group average.

Net income has also increased by an impressive 15% to £8.85m. Gordons seems keen to build on this relative success with a flurry of lateral hires. The firm hired charity lawyer Ros Harwood from Dickinson Dees in February and DWF’s head of property litigation Andrew Todd in July.

Paul Ayre, Gordons’ managing partner, is keen not to ruin profitable growth with reckless expansion. ‘We run a reasonably tight ship and haven’t had too many decisions that have brought heavy liabilities,’ he says.

That said, he doesn’t rule out the possibility of merging. ‘We’d never say it’s not going to happen but we’d never do it just to add turnover. We’d have to see a strategic benefit to it,’ he adds.

Given the state of the economy, firms in this peer group seem fairly phlegmatic about consolidation. Brabners’ Brandwood says: ‘You obviously need to keep an eye on what’s happening in the market place and if appropriate opportunities came along then we would look at them seriously.’

Never say never is the managing partner’s mantra when it comes to discussing mergers. But for many firms in this group, consolidation is unlikely to bring the salvation it promises. LB

david.stevenson@legalease.co.uk