After a year of significant legal market consolidation in 2012, do you think we will see more mergers involving UK law firms this year? If so, what kind of deals are most likely, and why?
TOUGH TIMES
‘No one is predicting an end to the difficult market conditions we currently operate in and therefore the fundamental issue in the legal sector, ie a market where supply far outweighs demand, will continue to drive the consolidation that we have seen in the last 12/24 months.
There have been a variety of drivers behind the mergers that we’ve seen to date. We have seen mergers of firms with complementary offerings to achieve shared critical mass and a larger combined client base to market to; mergers to increase geographical spread; and mergers born of sheer desperation with no rationale or logic behind them whatsoever.
The reality is that we have many different types of law firms in the sector and the deals that we will see moving forward will continue to be driven by a wide variety of factors until market conditions improve. When that will be is the $64,000 question.’
Bryan Hughes, chief executive, Eversheds
CLIENT FOCUS
‘We’ll see more mergers: a few dynastic marriages – and not a few shotgun weddings born of necessity. A few clients will want firms with global footprints but most will continue to value flexibility and best of breed solutions. Major integration problems will provide distraction for many firms while creating opportunities for those who can focus on clients.’
Jonathan Watmough, managing partner, RPC
HARD CALL
‘Having been involved in one of the early transatlantic mergers in 2001/02 I thought then the UK market was ripe for lots of consolidation in the salad days of positive GDP. There was some but not as much as I thought. With the onset of post-Blair rationing I told everyone there would now be huge hunger to do deals. Again, the appetite didn’t come as quickly as I thought.
So on the basis of the above track record I am bound to be wrong anyway so I go with none! What kind of deals? Probably ones with UK firms who recognise there aren’t many places left at the table.’
Paul Maher, chairman, Greenberg Traurig Maher
SCALING UP
‘The real question for 2013 is will the drivers for consolidation subside? Unlikely – the prevailing economic climate and disruption in the legal sector will continue to leave many top 100 firms with the prospect of contraction in real terms. Contraction isn’t on the strategic agenda for most ambitious businesses and in the absence of a strategy promising strong organic growth, a jump to scale will remain firmly on the agenda for many. Whether the benefit of scale offsets the ability to change and adapt swiftly, particularly in the immediate post-merger years, is another question altogether.’
John Westwell, managing partner, Foot Anstey
BLIND FAITH
‘Looking forward, I predict few global mergers in the first case since it is too big and speculative a proposition for all but a very few. The proposition that a merger will provide access to new markets is supplemented by the belief that increased size will provide competitiveness through visibility and the range of services on offer. But are the added opportunities and market firepower sufficient to outweigh the costs in terms of management inefficiencies and risk to the brand? There is nothing new in the “full service, everywhere” law firm offering and on a global level the economies of scale are not obvious; the successful global players have achieved their dominance through working outwards from a clear brand and not through grabbing market share.’
Michael Greville, managing partner, Watson, Farley & Williams
STRATEGIC POSITIONING
‘The market continues to be very competitive, especially for firms focused on the UK domestic market. This will no doubt continue to drive merger activity. Some of those mergers will be defensive, while others will be aimed at achieving greater scale in order to obtain a better strategic position.
A common theme, both domestically and internationally, is that many firms have not yet achieved a strategic position that they think is sustainable. During periods of low growth or recession, when there is less work to go round and client budgets are constrained, there tends to be a “flight to clarity”. This is driving merger activity.’
Gary Senior, London managing partner, Baker & McKenzie
LOOKING EAST
‘I expect internationalisation of the legal market to intensify, with UK firms in the vanguard. Driving this will be clients’growing preference to instruct one firm rather than a patchwork of legal advisers on their cross-border matters. I also envisage that Asia-Pacific will continue to grow in significance for multinationals and will therefore remain a strong focal point for UK firms looking to follow their clients. Expect more tie-ups in 2013 prompted by the region’s growing economic importance.’
Jonathan Scott, senior partner, Herbert Smith Freehills
NEW ORDER
‘The legal world has changed. Clients are demanding change. They want their lawyers to be closely aligned with them and to respond to their own internal cost pressures while not diluting the quality and delivery of advice. Clinging to traditional models and methods is not an option. Consolidation is a result of the market forces. I cannot see this becoming any less relevant throughout 2013.’
Nick Page, chairman, Bond Pearce
NO IDEA
‘Mergers are part of the survival of the fittest and the biggest so, yes, there will be more mergers. And now law firms understand what management is, having been told what to do by consultants for the last dozen years or so, there is nothing left for bored managing partners to do. Deals will be of all shapes and sizes and for all sorts of different reasons and some for no particularly good reason at all. Some merge for bad reasons or because they think they should but have no really clear idea of the strategy behind the merger.’
Patrick Gaul, managing partner, Weightmans
AGENDA SETTING
‘The amount of law firm combination activity currently taking place means that consolidation is already on the agenda. Everything points to an increase in this trend in 2013. The legal industry is clearly in a period of profound and permanent change. The macro-economic environment presents challenges to revenue growth and profitability that need no further comment. Clients are demanding that their lawyers provide even greater cross-border coverage, as well as deeper sector and practice expertise. Firms that don’t have a strategy for responding to these combined challenges are at risk of being left behind.’
Matthew Jones, EMEA chief executive, SNR Denton