Picking up Field Fisher

After years in the mid-market wilderness, Field Fisher Waterhouse is finally ready for a revolution. It wants to grow internationally and shake up its meandering management. The right suitor might just find a little sweetheart

The last 12 months have not been easy for Field Fisher Waterhouse (FFW). The acrimonious failure of merger talks with LG was followed by discussions with Osborne Clarke (OC) that leaked rather earlier than hoped. Then the firm’s newly appointed managing partner Matthew Lohn, tasked with turning the firm around, suffered a family bereavement that has taken him out of the business for a prolonged leave of absence.

Add to that the departure of the firm’s much-liked chief operating officer Charlie Keeling, a public squabble over the way the LG discussions ended, and a drop in PEP of 20%, and it’s clear this is a firm in need of a boost.

In his first interview since the OC talks became public, FFW’s acting managing partner Michael Chissick admits it’s time for a change. He says: ‘You don’t have to be a genius to see that the firms that are doing well are those that have invested in their international offices, like Bird & Bird. We want to be international.’

Furthermore, there’s a recognition that steady organic growth is unlikely to cut it. ‘It’s obvious that if you want to open in Asia and other parts of Europe, you need to be a bigger law firm and you need to be able to invest,’ says Chissick. ‘We know we need to have a bigger platform to make more investments.’

 

‘Firms that are doing well are those that have invested in their international offices, like Bird & Bird. We want to be international.’

 

Coupled with a belated realisation that FFW needs to be run along more professional lines, there’s a whiff of revolution in the air. This is not a basket case but a firm with a new ambition, and the easiest way for it to modernise and get the more sophisticated and professional management that it needs is a merger. Without one, it’s unlikely that FFW will ever achieve the international growth or profitability it craves.

 

What’s up for grabs

FFW is ripe for change. The firm is in that difficult mid-market spot where observers have been saying for years consolidation must happen. It has 386 lawyers, a turnover of £97.6m and comes in at number 38 in the LB100, just behind OC and Watson, Farley & Williams. But despite its 2011/12 PEP tumble, FFW has had a good few years financially, with revenues rising by 7% a year on a compound basis over the past five years, and turnover up 4% in the most recent financial year.

In common with many mid-market firms, profitability has taken a kicking. Between 2005 and 2008 the firm’s profit margin was consistently above 30%, but these days it stands at just 18%. It’s the same story with PEP, which fell by 16% to £434,000 this year, the lowest level since 2004 and well below the £500,000 that the partnership is aiming for.

‘Last year was disappointing in terms of PEP but more of an anomaly than a trend,’ says Chissick. ‘It’s very competitive in the mid-market space. We are under pressure from clients on fees and there is less work to go around.’

No surprises there. But FFW has not helped itself in this tough climate, only very recently waking up to the need to grab the strategic initiative and start fighting for its slice of the pie. As one former insider says of past management: ‘Strategy was always a bit cowboy-ish. They didn’t really think things out.’

The international expansion is a case in point. Between 2000 and 2010 FFW embarked on a hotch-potch of international growth, with office openings in Brussels, Germany and Paris. This year it opened in California’s Silicon Valley, such that it now has eight offices in total, including the firm’s London base and a low-cost outpost in Manchester. The international offices now bring in a respectable, but still relatively small, 20% of revenues, or around £20m a year.

In 2009, FFW introduced its ‘virtuous triangle’ strategy: a focus on clients that hit the sweet spot of being able to feed work to the corporate, TMT and regulatory practices, namely large tech companies that work in highly-regulated industries, such as Vodafone or Accenture.

Here progress has been made. But in the current market, FFW just doesn’t look big enough, profitable enough or international enough to thrive without a merger.

 

All change

With a domestic merger firmly on the cards, then, FFW was not sorry to be approached by LG about a tie-up in November 2011. Talks progressed until the early part of this year, with news leaking out to the press in May and the discussions swiftly abandoned in June.

At the time both firms issued polite statements confirming the talks had ended, but alternative explanations soon started doing the rounds. LG partners claim that the firm chose to walk away after it became clear that the FFW partnership was divided along departmental lines, with the IP and tech partners led by Mark Abell set on vetoing the deal. But insiders at FFW claim it put the kibosh on the talks because LG’s PEP of £304,000 – against FFW’s £434,000 – was just too low, and there were concerns over LG’s property liabilities.

There is probably truth in both versions of events, but either way, the talks reached a pretty undignified and unsatisfactory end. Poor communication was also at play: FFW confirmed to the press that talks were in progress before telling LG that it intended to do so, for instance, forcing the latter to rush through a statement to partners.

In February FFW’s former managing partner Moira Gilmour, who stepped down from management last summer and was later diagnosed with cancer, died. Head of regulatory and public sector Lohn was elected to the top job in October, and Chissick has been interim managing partner for the past four months in Lohn’s absence.

 

‘I can see why some people might think there is something untoward or Shakespearean going on, but there isn’t.’

 

Inferences have been made that Lohn’s absence from the firm was somehow connected to the failure of the LG talks, and that some kind of coup had put the IP and tech partners in charge and ousted the public sector side. But that’s not the case, insists Chissick, who says Lohn is due back at the firm in the near future.

‘Let’s deal with the managing partner issue,’ says Chissick. ‘Matthew is on a period of absence, I can see why some people might think there is something untoward or Shakespearean going on, but there isn’t.’

Lohn is described by former colleagues as ‘a real tough cookie and rising star’ and a ‘new broom, able to change things’.

Chissick, another FFW lifer who stood against Lohn in the elections, says that Lohn’s election to managing partner last year marked a sea change for the firm, with management now in the hands of a younger generation of partners keen to modernise.

‘What you had in that election was a generation change,’ says Chissick. ‘The firm went from the late-fifties, soon-to-be retiring partners managing the business to the forty-somethings. It’s quite significant because we represent a different generation, a different approach and fresh way of looking at the business.’

Lohn’s election led to a number of positive changes, with a team of consultants brought in to review the management structure. As a result, the firm scrapped the senior partner role and introduced a new four-partner supervisory board to oversee the managing partner and chief operating officer. The sector focus was also scaled back from 11 areas to just five, and a new-look executive committee and remuneration committee was rolled out to decide on partner earnings.

‘We wanted to open up the partnership and bring more people in to the equity, which we have done,’ says Chissick. ‘And we wanted to update the management structure, which we have done. It’s all about bringing FFW into the new millennium with a new generation of partners.’

 

Going for global

But the biggest growth for FFW has been in its international network, where its six international offices grew revenues by 40% to reach £20m in 2011/12. Last year the firm picked up a four-partner team from Howrey to launch offices in Munich and Düsseldorf, and saw strong performances from its Paris and Hamburg offices.

That growth has brought the firm’s patchy international coverage into sharp focus for management and is a major driver behind the hunt for a merger. Today FFW looks enviously at firms with a wider international network like Bird & Bird, and finds itself wanting.

Still, the obvious attractions of the US legal market have been ruled out, for now. A tie-up with an American firm might provide international coverage, but is seen in FFW as too difficult to achieve culturally – partners are frankly fearful of a transatlantic takeover. ‘America is out for us,’ says Chissick. ‘Our partners don’t want to be run from Chicago.’ Nevertheless, as a market America remains vitally important and strategically central for the firm. The recent Silicon Valley opening is aimed at targeting US tech clients looking to invest in Europe, and ironically apes the strategy of current sweetheart OC, which opened there in 2000.

 

The positives

The timing is also right for FFW to merge, because the firm has an option to exercise a break clause on its 110,000 sq ft of office space in 2014. The chance to offload its Aldgate space in the City would rule out any potentially tricky property stumbling blocks that so often put the brakes on deals.

The jewel in FFW’s crown is its IP, technology and regulatory practices, which together bring in over £34m of fees a year, and make the firm an attractive merger proposition for a similarly focused firm.

 

‘America is out for us. Our partners don’t want to be run from Chicago.’

 

The technology practice is top-notch, with an impressive six tier-one rankings out of a possible nine categories in this year’s TMT section of The Legal 500. It’s a big area for the firm with 47 partners in the department, and is headed up by Chissick. The group counts Motorola, Accenture and antivirus software group Sophos among its clients.

Likewise the public regulatory practice, formerly headed by Lohn and now run by Sarah Ellson, is well-regarded, although it is much smaller with just 12 partners. The firm’s professional negligence team sits within the group but has suffered in recent years, as clients such as the General Medical Council have become more price conscious and started turning to regional firms for advice defending disciplinary proceedings.

But FFW continues to handle big-ticket public sector work, such as work for the Foreign Office on a major technology outsourcing contract, and leads the way in billings to the government’s Whitehall legal panel, Buying Solutions. Between 2007 and 2010, that client generated £15.8m for the public sector practice, comfortably ahead of Pinsent Masons’ £14.7m and Freshfields Bruckhaus Deringer’s £12.1m.

Other bright spots are the corporate commercial department, which has grown its revenues from £15.4m in 2010 to £17.6m in 2012 and is rated tier one in The Legal 500 for commercial contracts. Here partners Robert Shooter and Paul Barton act for clients that include three of India’s largest software development companies, Accenture, BBC Worldwide and Vodafone.

 

Talking about a generation

Generations have always been an issue at FFW. In 1992 a clause was inserted into the partnership deed that reads: ‘Prior to December 31 2021, none of Mark Abell, Nick Rose and Peter Stewart shall be entitled to stand for election to the position of managing partner.’ Abell says it was done precisely because the retiring management team at the time did not feel the new younger generation of partners, all in their thirties, was ready to the run the firm and take it in the right strategic direction. Abell, Rose and Stewart consented to the clause.

‘It wasn’t forced on us. Peter, Nick and I had no problem with that clause and even voted for it,’ says Abell. ‘We were a younger generation of partners and had a view that wasn’t one that the existing partners in the firm were comfortable with.’

Today, ‘None of us wants to be managing partner,’ he says. ‘It’s a historic anachronism that was released by a former partner to try and embarrass us. I’m certainly not running the firm, I’m head of IP and technology and focused on that.’

Abell is a big hitter and has in the past been accused of pulling the strings from the sidelines, while prohibited from taking charge. In the wake of the LG talks, which Abell opposed, his power over the firm was again in the spotlight, though rare is the big-biller whose opinion doesn’t hold sway.

‘No one talks about that clause at FFW. It’s academic,’ says Chissick. ‘It was inserted before I joined the firm but I imagine they didn’t get on and thought it would be best for everyone if they didn’t run for management. It just so happens that those three partners are still at the firm but none of them has any interest in managing the business. It was cleverly drafted to make it an immovable clause, but it’s historic and doesn’t feature these days.’

On Abell he adds: ‘Mark was instrumental in driving forward the business. He’s a strong personality but he stepped out of management and has voluntarily left the board. He’s handed it over to the next generation. I’m now running the show and there isn’t much more of a story to it.’

 

Eyeing OC

At press time, FFW and OC were in early merger talks. The pair began informal talks following a meeting between OC managing partner Simon Beswick and FFW’s Lohn in the spring.

Insiders say that both had hoped to carry out their ‘getting to know you’ phase until Christmas before formally announcing anything. But in September the news broke, forcing FFW to issue a statement saying, ‘It is well known that merger is on Field Fisher Waterhouse’s agenda as potentially one way of achieving our ambitious growth plans and strategic objectives. This means that like many in the mid-market we have been speaking to a number of firms to explore the benefits that such a merger would bring. We will not be commenting on individual talks unless they reach an appropriate stage.’

For now, however, OC is the chief contender, and in many ways the deal would make sense, creating a business with revenues of around £200m and 800 lawyers. The core practice areas lead to complementary strengths, notably in technology, and the firms will combine to become particularly potent in areas such as IP and mid-sized M&A work for technology companies.

OC has a more advanced international strategy than FFW, but again both firms will complement each other well in key markets, particularly Germany and France. Both now have offices in Silicon Valley – where OC is by far the senior partner – and have worked hard at developing credible India desks.

In the wake of the LG talks, much comment was made about FFW’s apparently divided partnership. But OC partners say they’ve seen no evidence of such. ‘You read all that stuff and think – should the firm really be considering this?’ says one. ‘But we are baffled by it. Our experience is very different to what has been written about them in the press.’

FFW has been through the mill in 2012. ‘They feel like they are a fairly traditional law firm that has been run in a traditional way and is on a journey to becoming a more modern firm,’ says a source familiar with the firm. ‘They seem up for change.’

They might not be able to transform on their own. But a merger partner may just pick up something pretty sweet. 

mark.mcateer@legalease.co.uk