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“DLA taking Bird Semple, Masons, Camerons in Aberdeen. Some deals. Not much really. Hardly makes for an interesting story.”This is how Chris Campbell, managing partner of Dundas & Wilson, sums up the past year. In many ways he is correct, if a little unfair on his fellow Scottish lawyers. The remarkable thing about the last 12 months was that so little happened when so much was expected.This time last year the market was preparing itself for an assault from across the border, with some of the large English regional firms and Big Five accountants looking towards Scotland for expansion.DLA did merge with Glasgow-based Bird Semple, but the DLA merger has, as yet, failed to shake up the market.One factor behind the apparent conservatism of the last 12 months lies in the current strength of the economy. Scotland, like the rest of the UK, has experienced its fourth bull year and almost all the firms have profited from plentiful work.But, at some stage, the economy must take a downturn. When work becomes scarcer Scotland’s overpopulated mid-tier will lose out. This is the time for firms to consolidate and plan ahead. But, while the market is aware of the danger, and its talk is dynamic, nothing has shaken up the market since Dundas & Wilson joined the Andersen Legal network three years ago.The quiet surface of the market belies the jockeying for position that is going on underneath. Scotland is quite aware that English firms are still looking for a cross-border merger or even a brand new office. Masons has managed it, so there is no reason why Eversheds or Hammond Suddards should not do the same.Although the accountants have yet to set up in Scotland, they have been investigating the market. The other four of the Big Five firms have been looking for a Scottish legal arm. Meanwhile, the law firms are talking about another mid-tier merger that might actually shake up the market. Positioning and strategy is a common theme. The Scottish market is hard to quantify as distinct from the UK economy. Despite being a nation in its own right with its own devolved parliament, there is no calculated figure for gross national product, so it is impossible to accurately trace how much Scottish money stays in Scotland.This is relevant to the legal market because a Scottish company will not necessarily instruct Scottish lawyers. The larger deals still get done in London. An important deal for a Scottish company does not necessarily lead to a major instruction for a Scottish law firm. Bigger deals almost invariably head south.Maclay Murray & Spens managing partner Michael Walker acknowledges that the bulk of the firm’s work is on deals of up to £50m.Nevertheless, Edinburgh is the UK’s second-largest financial centre, and Europe’s eighth biggest. Financial services is the most important and lucrative business area for Scots law firms. Scottish law gives firms a degree of protection, because every deal done has to be translated into Scots law, creating work for Scots’ lawyers – known as ‘putting a kilt on the deal’ – and firms are in a good position to build themselves into entities that are on a par with the UK’s top regional players.Scotland is also reaping the rewards of the technology boom. Livingston, conveniently situated between Edinburgh, the home of Scottish institutions, and Glasgow, the centre of Scottish industry, has recently been dubbed ‘Silicon Glen’. Although not the size of Silicon Fen in East Anglia, it is significantly profitable and has a few hidden treasures: Sun Systems, for example, manufactures all of its chips north of the border. All the key firms have been developing their technology practices. This movement has been led by Glasgow-based Maclay Murray & Spens, the first Scottish firm to open a separate IT department in 1991. McGrigor Donald is also a market leader, with Shonaig McPherson’s IT team in demand. Government services, such as private finance initiative (PFI) work, are the next most important areas for Scottish firms. Scotland has embraced the initiative, and has been using it to develop a great deal of its ailing infrastructure. Although most of the deals so far have originated from the old Scottish Office, the new Scottish Assembly is set to continue this trend.Property, a traditional Glasgow money-maker, is fast becoming an Edinburgh strength. The new parliament, with the influx of branch offices from UK and overseas companies moving there to take advantage of it, has created a squeeze on affordable office space, drawing the nucleus of the property market east into Edinburgh.Aberdeen firms concentrate on servicing all aspects of the oil and gas sector. Ledingham Chalmers is the major Scottish firm in this division. It also has an office in Glasgow and a shop-front operation in Edinburgh. CMS Cameron McKenna has recently opened an office in Aberdeen. The Scottish legal sphere is different from its English equivalent because it has no clear market leaders and more lawyers servicing a smaller sector. Although previously split between Edinburgh and Glasgow, almost all of the major and mid-tier firms now have bases in both cities. The Scottish Big Four – Dundas & Wilson, McGrigor Donald, Shepherd & Wedderburn and Maclay Murray & Spens – are the most profitable and prestigious practices. All have offices in London, although Dundas’ link is through Andersen Legal’s Garretts, which is made up of about 50 partners. Their turnovers are in the £35m range.However, larger and more consolidated they may be, but not by much. They do not outstrip the smaller firms in the area by the same margin as, for example, the market leaders in Manchester or Birmingham. And they are still in danger of being undercut from below.The crowded mid-tier of 20-35 partner firms, the most notable of which are Burness, Tods Murray, MacRoberts, Brodies, and, in private client work, Turcan Connell, are the firms to watch. It is here that most change will occur. Masons has carved itself a lucrative niche construction practice in Scotland, and the Big Four are in general agreement that Burness has nudged its way to the top of the pack over the last few years. Dickson Minto remains outside this differential. Now, with the majority of its profit coming from London it is more of a London firm that started in Scotland than a Scottish firm with a London office.Maclays has had profits growth of about 20%, bringing profits per partner to around £180,000. Another good result, especially considering the figure stood at around £88,000 three years ago. The firm has also topped the table again for corporate deals in Scotland, although it is generously cushioned by its long-standing relationship with venture capital firm 3i.“This year capital projects and IP have been expanding, and IT has been growing. Banking is also going particularly well,” Walker says. “The Edinburgh property market has also been going up like mad.” His analysis is typical. As in the rest of the UK, the protected market of Scotland, which operates mostly out of Edinburgh and Glasgow and oil-and-minerals town Aberdeen, is booming at an almost unheard-of rate. It is not surprising that the largest firm have received the most instructions. Dundas & Wilson, McGrigor Donald, Maclay Murray & Spens, and Shepherd & Wedderburn have remained comfortably ahead, with Dundas & Wilson on top of the pile and McGrigors following close behind. The middle tier has some cause to worry about this. As the big firms get bigger, it is sure to be the mid-sized firms that lose out the most. After all, booming though it might be, there is only a finite amount of work in Scotland, but an excess of lawyers.Jack Gardiner, head of corporate at DLA Glasgow, previously known as Bird Semple, agrees. “Medium-sized firms have not and will not have the critical mass needed for survival,” he says. “Before long they will find themselves marginalised.” This was a key reason behind Bird Semple’s decision to merge with DLA, a marriage that was perhaps more to the advantage of the Glasgow firm than the Yorkshire one.Bird Semple started the year with 19 partners and a second office in Edinburgh. Now, as part of the DLA chain, the firm is part of a partnership of 257 with offices across the UK and Europe. In one simple move the firm has cushioned itself against marginalisation. But DLA does not intend to stop there. The firm has announced an ambitious expansion plan that aims to put DLA Scotland in the top two firms in Edinburgh and Glasgow, and an expansion to more than 50 partners. This will mean increasing turnover to more than £35m.Gardiner states that this cannot be done by organic growth alone. He is happy to admit that the firm is looking for more partners and associates, especially in corporate, banking, insurance and litigation. “We are not talking to firms, we are talking to people,” he states, confidently predicting high-profile recruits in the near future. “Consolidation means standing still” is his approach.If confidence and drive were the only factors, DLA would be a good bet for success. However, by his own dictum, Gardiner seems to have been standing still. No new recruits have been announced, no departments have been strengthened, and, in truth, the DLA Scottish operation seems little different from the old Bird Semple one, if a bit more stable. Gardiner might prove his rivals wrong. It is still early days, DLA will make the Bird Semple merger a success sooner or later and the firm will be a major player. But the expected shockwaves have not hit. A number of solicitors have rebuffed Gardiner’s advances: at least three six-year qualifieds from Dundas & Wilson have turned down partnership offers to stay at their firm.The mid-market is aware of the difficulties it faces. Burness is openly looking for a merger, while Brodies, one of the few notable firms to have only one office, has been trying unsuccessfully to merge its way into Glasgow.“Three years ago we shook up the market and did something different” says Campbell of the Dundas AA deal. “But nobody else has done anything since. They talk about doing things, but what have they actually done?”It is a point that has to be addressed. The threat from national firms remains. Masons has been a notable success since it opened up as a construction firm in Glasgow two years ago. Its second year turnover figures have gone up by 300% to £1.4m and the firm has opened a second office in Edinburgh and is branching into the corporate scene. There is an opening for one of the top mid-tier firms – through re-structuring, merging or streamlining – to take advantage of these good times in order to pave an easier route into the down-times when the market becomes tighter. A strong and responsive mid-tier firm may emerge that is light enough on its feet to adapt and has a strong enough reputation behind it to undercut the likes of the Scottish giants McGrigor Donald and Dundas & Wilson. Mergers with other Scots firms, mergers with accountants, mergers with English firms, lateral hiring and strong organic growth are on the cards. It is certainly possible that in the medium term one of the mid-tier firms will break away from the pack.The jury is out as to which one that might be, but the frontrunners seem to be Burness or MacRoberts. At the moment, the market will carry on making comfortable amounts of money for Scotland’s mid and upper tier. So when the good times become less good, it will become apparent which firms have been preparing, and which ones have just been talking about it.

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