The LB100’s regional players have seen starkly divided fortunes with the South West players sailing ahead while northern firms face choppy waters
Collectively, the 29 regional firms in the second half of the Legal Business 100 (LB100) trail in the wake of other peer groups. While average revenue is £38.4m, a little below the £39m of the second 50 as a whole, revenue per lawyer (RPL) is 9% lower than the average for firms ranked 51-100. In terms of profits, average profit per lawyer (PPL) is £45,000, some 10% lower than the bottom 50 average, while profit per equity partner (PEP) is £309,000.
The upshot is that while the performance across the entire second half of the LB100 has been positive, any collective optimism is heavy with caveats.
‘I’m optimistic for the next 12 months,’ says Michael Ward, senior partner of Midlands law firm Gateley. ‘It’s not going to be easy though. The conditions are better, but people are still being quite cautious. So I’m not getting carried away with the idea that everything in the garden is rosy. It will be a challenging year but with a slightly more benign backdrop.’
Victoria Brackett, managing partner of South East practice Thomas Eggar, which merged with City boutique Pritchard Englefield last April, pushing revenues from £36.6m to £41m, echoes this sentiment. ‘I’m not pessimistic, but I’m not sure I’m bounding with optimism either,’ she says. ‘Recovery will continue to be slow. The challenges now are around new entrants, consolidation and pricing. Although we are cautiously climbing out of a recession, there are other challenges for law firms at the moment that are nowhere near finished.’
But analysing the LB100 by region, it would appear that those managing partners at the helm in the South and Midlands-based firms in the LB100 have the wind in their sails far more than those further north.
Due south
A clutch of southern firms have reported double-digit growth in revenue and profits and it has been a strong year for firms based in the South West specifically. Bristol practice TLT has continued its impressive revenue growth, up 17% from £49.6m to £58m, building on the 11% growth posted in last year’s LB100 and amounting to top-line growth of 49% over the last five years.
‘We’ve added to our geographical footprint based on client feedback; we’ve recruited around that; we’ve won more work; and we’ve deepened our expertise,’ says Pester.
Exeter’s Foot Anstey also experienced double-digit growth, with turnover up by 14% to £27.5m. The firm also saw a substantial increase in PEP – up 17% from £224,000 in 2012/13 to £263,000.
Duncan Ralph, the firm’s commercial and financial director, attributes the performance to a combination of the firm’s five-year strategy, drawn up in 2008, to become a premier regional law firm with a national client base and a general improvement in the marketplace over the same period. Revenues at the firm have grown 37% during this period.
‘The South West as a region is probably one of the strongest,’ he says. ‘It has a large city – Bristol – and close proximity to the South East, which is massively important because it means there is a strong familiarity between decision-makers in both regions. Going from London to Bristol doesn’t feel like a long way. It’s all very manageable.’
Even Clarke Willmott, a Bristol-based player that has struggled more than most in recent years, rallied to some extent in 2013/14: turnover was up 9% to £36.2m, although still more than 20% down on income levels five years ago. PEP has recovered by 42% to £200,000, with equity partner numbers up by one to 30.
Further evidence of strength in the South West can be seen in the fact that two of the new entrants to the LB100 this year hail from this part of the country: Swindon-headquartered Thrings, which was last in the LB100 in 2011, and Devon-bred Michelmores.
Edging forward
The competitive Midlands market continues to be shaped by consolidation, with the highly acquisitive Birmingham-based Shakespeares reaching the £50m turnover mark with a 10% increase on last year’s figure of £45.4m, after strengthening its property team with the acquisition of Marrons, a planning boutique based in Leicester, and Newsome Vaughan, a social housing boutique based in Coventry.
‘To continue to fund the level of investment in people, technology and brand, we are going to have to be substantially bigger. If we can’t achieve that, then we can’t always believe that we will be the acquirer – we may end up being the acquired. We will continue to look to consolidate with an emphasis outside of London, but with a willingness to go to London if we can find the right opportunity. So I would expect you to see us do two or three significant merger transactions within the next 18 months.’
Nottingham-based Freeths is another firm to climb up the rankings this year, with revenues up to just shy of £50m on the back of the acquisition of Oxford-based Henmans in early 2013. Similarly, local rival Browne Jacobson has had a robust year, with revenues rising 12% to £50.2m, representing a 52% increase since 2008/09.
Gateley, itself the product of a union of a major Birmingham player and a Scottish firm in 2006, experienced another year of solid growth, with turnover up 9% from £66m to £71.7m. Over five years, these figures become even more impressive, with the firm seeing a 49% increase in gross fees. Yet even with such figures, senior partner Ward has no illusions about the challenges the firm will face.
‘Talent and resource will be the biggest challenges. A lot of people haven’t invested in their business over the last two to three years and will be looking to fill positions, believing they have opportunities to win business.’
He also pinpoints an issue that affects the entire LB100. ‘Another challenge will be getting price expectation back to realistic levels,’ he says. ‘Once a firm has done a job for a certain price, it’s difficult to go back and then quote significantly above that, even though market conditions have changed.’
‘Everyone’s getting squeezed on rates,’ says EJ Legal founder Simon Janion. ‘That is the main legacy of the downturn – rates got seriously hit and everyone was undercutting everyone else to get the work, and you can’t suddenly whack your rates back up as soon as there’s an uptick. Inevitably you’re having to charge at the same rates you did to get the work during the downturn and those rates will continue until clients are prepared to pay more.’
Close quarters
In stark contrast, northern firms appear to be fighting the tide with Newcastle-based Ward Hadaway and Leeds-based Walker Morris posting very modest turnover increases of 2% and 1% to £33.7m and £42.5m respectively, while revenue at Liverpool’s Brabners is flat at £30m.
Also in Leeds, turnover at Gordons was £22.9m, down 11% from the £25.8m posted in 2012/13. Managing partner Paul Ayre admits it was a challenging year for the firm, which had previously experienced sustained growth over a ten-year period. In the last five years Gordons has seen 6% growth overall.
‘Last year wasn’t an easy year by our standards. There were two principal factors: client pressure and some strategic restructuring in the business – areas that we’ve effectively come out of or are reducing exposure to – claimant personal injury and residential conveyancing. But the first quarter of this year is showing a return to growth.’
Further north, after an extended depressed period, which saw a few casualties – not least Dundas & Wilson, which has endured the worst performance of any LB100 firm over the last five years (see ‘Staying on course: the five-year view on the LB100’) – the two remaining Scottish firms that made up the original ‘big four’ are finally seeing a reversal in fortunes.
Shepherd and Wedderburn and Maclay Murray & Spens are far from completely recovered after a difficult period post-Lehman, but have posted solid year-on-year growth. Maclays’ turnover is up 6% to £43.3m, with PEP up by 22% to £257,000, despite increasing equity partner ranks by one partner during the year. Shepherd, meanwhile, saw revenues grow by 7% to £38.3m, with PEP recovering by 6% to £265,000, again with a slight uptick in equity partner headcount.
According to Maclays chief executive Kenneth Shand, who took over the role this year, the firm is open-minded about how it can sustain profitable growth.
‘There are clear signs that the UK economy is in a more positive place,’ says Shand. ‘That means greater client confidence and activity from which we should see opportunities arising to achieve profitable growth. We are exploring a number of ways of achieving that. We are not about to sign up to a merger, but equally it’s genuinely a possibility at some stage.’
Many law firm leaders in the regions are struggling to gain a clearer view while operating in one of the most turbulent sections of the national legal market. But for many, waiting for the right opportunity in a rapidly consolidating market must not mean being left behind. LB