DWF is set to acquire Cobbetts in a pre-pack deal, after the struggling Manchester-based firm called in administrators KPMG last month.
The top 40 UK firm announced its intentions to acquire Cobbetts almost a year after merger attempts by the two firms failed. At the time, a joint statement said talks had finished because of ‘continuing uncertain market conditions’.
Under the agreement, DWF will take on 419 staff, including partners, from the fallen firm in Leeds, Manchester, London and Birmingham. The DWF deal does not include Cobbetts’ debt recovery team, Incasso, while Walker Morris has taken the firm’s 24-strong financial litigation team.
The pre-pack deal is currently awaiting court approval and will see DWF acquire the firm but not its debt.
Incasso, which has 52 staff and operates a separate LLP, is set to be taken over by Midlands debt recovery firm HL Legal & Collections Solicitors. The Leeds-based business also went into administration alongside Cobbetts.
According to Cobbetts’ 2010/11 LLP accounts, the firm was holding debt in excess of £10m, which it owed to creditor Lloyds TSB. It is understood that this was a contributing factor to the collapse of the merger talks with DWF.
By consensus Cobbetts had been in trouble for some time. The firm’s two main practice areas of real estate and corporate suffered severely during the financial crisis and the firm blamed poor trading results during the final months of 2012.
‘This is a strong result and an important step forward for DWF in the market.’
Mark Firmin, KPMG
But the firm’s problems were felt prior to the recession and in 2006 Cobbetts culled 15% of its partnership, losing 20 partners. It also made three separate redundancy rounds during the downturn, with 69 jobs facing the axe as a result.
‘It was a bit of a shock to be honest. With Halliwells, people had talked about it for two years before it happened. Cobbetts seemed apparently back on track,’ said a Manchester-based partner.
Market sceptics said that the firm tried to expand too quickly during the boom and was hit hard by the acquisition of teams in Leeds and Birmingham between 2004 and 2005.
‘Cobbetts essentially got carried away with the exuberance of the 2000s, so they started doing too much expansion. Getting a flashy office in Birmingham for instance,’ said a managing partner at a major UK firm.
Another said: ‘When the market got more difficult, everything got more competitive and they probably got dropped off the deal list by clients who were prepared to use them when there was too much work and not enough lawyers around.’
Cobbetts is the latest commercial firm to fall victim to the financial crisis. US giant Dewey & LeBoeuf went bust last summer, while fellow Manchester player Halliwells went into administration in 2010.
George Bull, who chairs the professional practices group at accountancy firm Baker Tilly, said that the reason law firms go bust is usually for two reasons: property problems and an ‘excess of hubris’.
He added that while 2012 was characterised by firms looking to merge, this year will see the firms that failed to secure deals desperately looking for a larger firm to acquire them.
Mark Firmin, joint administrator of Cobbetts and UK regions head of restructuring at KPMG, said: ‘In the current economic climate we are delighted to have brokered a deal that saves more than 400 jobs. We have moved swiftly, working in collaboration with a number of stakeholders, including the Solicitors Regulation Authority, to conclude this deal between Cobbetts and DWF. This is a strong result and an important step forward for DWF in the market.’
A raft of firms have taken roles acting on Cobbetts’ administration, with Pinsent Masons taking the lead role acting for KPMG. The firm has fielded a team under restructuring partner Steve Cottee, who also advised the administrators of London firm Hextalls in 2009. Taylor Wessing advised HL Legal on the sale of Incasso, with corporate partner Tom Cartwright and tech partner Christopher Jeffery leading.
Both DWF and Cobbetts declined to comment.