Shakespeares CEO Paul Wilson
Photo: Jude Edginton
For Birmingham, England–based commercial firm Shakespeares, rapid growth has long been high on the agenda. Ever since the 2006 arrival of CEO Paul Wilson—one of a relatively small but growing number of nonlawyer managers heading U.K. law firms—Shakespeares has been on an almost continuous merger spree. A few weeks after Wilson joined from London media and technology firm Olswang, his new firm doubled in size through a combination with a local rival. It has merged six more times in the past five years, increasing its revenue by over 500 percent. Yet Wilson believes further growth is needed to secure the firm's long-term future within a U.K. midmarket that is under threat.
Lacking the scale, client relationships, or expertise to compete with the global elite for premium mandates, and with process-driven work such as insurance claims increasingly been pushed down the legal food chain to the lowest bidder, British midsize firms are finding themselves squeezed. Many are struggling to meet increasing client demand for advisers able to handle a broader range of work across a greater number of jurisdictions—and often at a lower price. Midmarket firms are also facing the influx of new competition from commercial entities such as retailers and insurance companies, which are now permitted to offer legal advice following the liberalization of the country's £25 billion ($39.5 billion) legal services market. (The radical new legislation, enacted in October 2011 after multiple delays by the U.K. government, also allows nonlawyers to hold equity stakes in law firms.)
Nor is the economy helping: Thanks to the prolonged Eurozone crisis and a U.K. recession, the United Kingdom's 100 largest firms saw revenue grow by just 3.8 percent in the three months ending July 31, 2012, according to a report by Deloitte Touche Tohmatsu Limited—their slowest growth rate for six quarters.
"The U.K. legal market is vastly overlawyered and is changing faster than ever before," says Wilson, who also has experience as a manager in the banking industry. "Law is becoming more commoditized, meaning that procurement teams can increasingly make decisions based on price, not just quality, and the deregulation of ownership is going to affect things in a big way. The question for all firms is whether you can change yourselves quickly enough to stay ahead of that curve."
This growing pressure is creating a wave of law firm merger activity. There were 21 mergers involving the U.K. top 100 in 2011, according to management consultancy Jomati's MergerLine, which tracks publicly reported mergers among the country's leading law firms. And the rate shows no sign of slowing: At press time 23 more had already been announced in 2012 [see "Acts of Union,"], and discussions surrounding two further major deals were ongoing. Both Field Fisher Waterhouse, a 260-lawyer London firm with a strong technology focus, and Bond Pearce, a full-service firm from England's southwest with close ties to the energy and renewables sector, had other abortive merger negotiations earlier this year, with London's LG and Scottish "Big Four" firm Maclay Murray & Spens, respectively. Both are currently in fresh talks with new targets. FFW is pursuing a tie-up with national practice Osborne Clarke that would create a top 20 firm with revenues of £200 million ($320 million), while Bond Pearce is in negotiations with regional outfit Dickinson Dees that, if successful, would propel the combined firm into the U.K. top 40. FFW managing partner Matthew Lohn said in a statement that merger is now on the agenda for "the majority of midmarket firms."
But while the flurry of combinations has continued, their emphasis appears to be subtly shifting. Most recent mergers by U.K. law firms have been driven either by geographic expansion, such as the glut of moves into Australia by Ashurst (merged with Blake Dawson in March 2012), Linklaters (formed an alliance with Allens in May 2012), and Herbert Smith (merged with Freehills in October 2012), or by consolidation within a sector, such as the November 2011 combination of insurance rivals Clyde & Co and Barlow, Lyde & Gilbert. Marriages between two midmarket U.K. firms, on the other hand, have generally been scarce. That is beginning to change. In 2011 almost half of the 21 reported mergers involved U.K. firms expanding overseas. Of the 23 announced so far in 2012, 65 percent have been purely domestic in nature.
"Last year, most mergers were international developments—this year, the pendulum is swinging much more to the domestic," says former Clifford Chance managing partner Tony Williams, now principal at Jomati. "It's a tough market at the moment, and as is true in any industry, when in a relatively flat market you have to look at ways to protect and enhance your position."
Given the fragmented state of the U.K. legal market, most law firm partners and consultants would agree that consolidation was not only inevitable but necessary. "[Midsize firms] have a broader spread of practices and need a certain degree of investment in IT, marketing, and human resources, but don't always have the revenue to back it up," says Mark Dembovsky, CEO at London-based Howard Kennedy, which recently agreed to merge with London's Finers Stephens Innocent to create a new 200-lawyer firm with revenue of around £45 million ($73 million). "It's a case of being too big to be small, but too small to be big."
Shakespeares has been more proactive than most in its efforts to avoid such a fate. In 2009 its partners agreed to an audacious new strategy that would see the then 180-lawyer firm increase its revenue from £9 million ($14.5 million) to £50 million ($80 million) within the space of just five years. Having subsequently merged no fewer than six times—with five coming since April 2010—the firm has already hit its target a full two years ahead of schedule.
Its most recent deal came last September, with fellow Midlands outfit Harvey Ingram, which had more than doubled the size of its own equity partnership from 16 to 34 through a 2011 merger with Borneos in Milton Keynes, a city near London. The combined business, Harvey Ingram Shakespeares, comprises more than 400 lawyers across seven U.K. offices. With revenue of around £50 million, it is now the second-largest law firm in the Midlands region—behind U.K. top-25 member Wragge & Co, which has 450 lawyers and revenue of almost £120 million ($193 million)—and is on the cusp of the U.K. top 50.
Wilson says this increased scale permits the firm to both generate cost savings—Shakespeares recently announced 54 layoffs, comprising 41 support staff and 13 lawyers, and closed three of its smaller regional offices—and to support a broader range of practices. It has launched small specialist teams in both real estate planning and intellectual property since the merger, for example, and is now considering establishing dedicated tax and pensions groups, which Wilson says the firm "couldn't have afforded to do" previously.
But Shakespeares isn't done merging just yet. Despite its transformational growth, Wilson believes the firm is "still vulnerable" in the medium term. There are opportunities for further growth in the Midlands, he adds, but to attain the necessary scale, the firm may "have to go further afield"—either to London, or to one of the country's other main legal and business centers, such as Bristol, Leeds, Liverpool, Manchester, or Newcastle. So, rather than taking its foot off the gas, the firm will continue to merge—as often as every six months—with the aim of doubling in size within the next three years. Wilson says he is "not particularly concerned" about the potential risks of such breakneck growth or the prospect of having to continually integrate new practices—"we've done lots of mergers now and have become pretty good at it," he says—but he admits that finding suitable firms will become more difficult as the market consolidates.
