LB100 Scotland – Flying the Saltire

One firm in particular again stands out from the morass of misery that has beset the Scottish legal market in recent years, as it did last year: Brodies.

Brodies has recorded one of the highest real-term turnover increases this year in the entire LB100: up 16% to £42.8m, leapfrogging Shepherd and Wedderburn, which has remained static. This is no flash in the pan either: Brodies five-year revenue compound annual growth rate (CAGR) is 7%, easily the highest in the peer group and all achieved without a merger.

The firm is also highly profitable. Net income is up 30%, again the highest in the group, putting profit per lawyer (PPL) at a healthy £50,000.

The fortune of Brodies contrasts with the three largest firms in Scotland: Dundas & Wilson, Maclay Murray & Spens and Shepherd and Wedderburn. All have suffered depressed or flatlining turnover and all have spread their wings beyond Scotland to the rest of the UK in recent years in a move that can largely be viewed as a failure. Brodies and Burness, who have nailed the Saltire firmly to their masts, appear to have opted for the sensible strategy. Burness posted a solid 4% increase in turnover to £24.3m, which means revenues are up 20% since a drop in 2009 and are ahead of 2008 levels. Net income rose 10%, giving the firm a profit margin of 42%, one of the highest in the LB100.

‘We believe that in a market where we have seen many peers retrench or look for cover, our strategy, continuing investment and focus on a client driven service will see us continue our growth pattern,’ says Burness chairman Philip Rodney.

‘Our strategy is not competing against City firms in a challenging market, where firms are of a scale and have an existing client base – it doesn’t make a lot of sense,’ says Brodies managing partner Bill Drummond. ‘We consciously, strategically decided that it’s the wrong thing to do to go to London or anywhere in England and seek to compete. We do plenty of international work but for a different client base than perhaps the one that City lawyers are acting for.’

‘I think to seek to be a very clear top tier competitor in Scotland is a very important thing to us,’ he adds. ‘It’s about concentrating your investment activity in the places where you can achieve that. If we were going to London we would maybe be given plaudits but we’ve yet to have a major client tell us that is what they want us to do.’

While these two firms have flourished in their home market, the Big Four have not had that luxury – their dependence on transactional work from the banks has forced them to move south with their clients, meaning they are fighting on two fronts.

Maclays still tops the group with revenues of £46.9m, but is being caught up by Brodies. Turnover is shown as slightly down on last year, but chief executive Chris Smylie says the unaudited turnover figure supplied last year of £48.6m was slightly higher than the actual figure in the firm’s LLP accounts of £47.3m. Taking that into account, revenues are more or less flat this year. Revenue per lawyer is up 4% on last year and profits are up slightly: reflecting that headcount is down overall at the firm. Both Maclays and Shepherd and Wedderburn are in the same boat: revenues pretty much static, with total headcount also reduced to eke out a modest increase in net income. Contrast this with Turcan Connell, which has flat revenues and unchanged fee-earner numbers, taking the hit of a small reduction in net profit.

‘Like most other businesses, we’ve been looking very closely at cost,’ says Smylie. ‘Essentially it’s just superfluous costs that we’ve taken out. Very little of that has related directly to headcount. We’re down around 8% in headcount, which is very much in keeping with the way firms have been contracting. That’s been more by not replacing people than any sort of direct action.’

Smylie is bullish about the long-term outlook for Scotland, which he says remains a priority for the firm, despite the need to expand its UK presence.

‘Scotland is characterised by a fairly gloomy overall prognosis but two things are important to note,’ he says. ‘One is we have confidence in the Scottish market as a solid, reliable, long-term place to do business. We don’t regard the travails of the last four or five years as being somehow a death knell for the Scottish economy or the Scottish legal sector; anything but.

 

 

‘Having said that, undoubtedly the nature of the market has changed,’ he adds. ‘There was a very heavy reliance previously on the financial services sector, a sector that was overperforming in one view against what we now regard as the “new normal” of trading conditions. We and the majority of Scottish law firms benefited from that. We don’t expect there to be a return to that situation – the marketplace will recover but we don’t expect it to return to the halcyon days of the mid-2000s.’

In the meantime, the Scottish market has been beset by rabid merger activity in the last 12 months as some firms have looked to a UK tie-up to secure the long-term future of their business. McGrigors has disappeared from our Major UK table after being acquired by Pinsent Masons, while Biggart Baillie, a Scottish blueblood which can trace its origins back to 1894, merged with our 2011 National/Regional Firm of the Year, DWF, on 1 July.

Dundas and Maclays both walked away from merger talks with English firms in the last 12 months – Bircham Dyson Bell and Bond Pearce respectively.

Douglas Connell, founder and joint senior partner of Scottish LB100 firm Turcan Connell described recent events as ‘a major turning point for the Scottish legal profession’. More Anglo-Scottish tie-ups are expected in the coming year. LB

mark.mcateer@legalease.co.uk