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The Yorkshire approach As several Leeds-based national firms go global, new opportunities arise for others. But while investment in Yorkshire’s capital is substantial, long-established Walker Morris remains the benchmark of local success. For how long will it reign? SAM KENWORTHY
58 Legal Business October 2004
‘POTENTIAL’ IS THE WATCHWORD OF A Leeds legal market undergoing something of a shake-up. The 2003 merger of Addleshaw Booth & Co and Theodore Goddard meant that, of the city’s ‘Big Six’ – Addleshaw Goddard, DLA, Eversheds, Hammonds, Pinsents and Walker Morris – only the last named maintains a single office. Walker Morris’s counter-cultural pose is conspicuously strong: it is posting record per partner profits and maintaining a tightly held equity partnership. Firms with their major investments in London are shifting their focus to national and multinational clients; maintaining a single regional stronghold may be more of a strength than a weakness in the newly open Leeds market. Meanwhile, Lancashire-founded Cobbetts is on the march. ‘We felt we’d gone as far as we could in the Manchester market, and with the critical mass that we had, we hoped we could appeal to the bigger clientele,’ confirms senior partner Stephen White. He’s got a point: three years ago White’s firm was nothing more than a Manchester stalwart of commensurate size and a homely reputation. Four mergers, an aggressive recruitment drive and two new offices in Birmingham and Leeds later, and the firm’s activities resemble a blitzkrieg storming across the Pennines. From the North, the decision of Newcastle firm Watson Burton to set up its own garrison in Leeds gives it a leg-up on other Tyneside firms with ambitions in North Yorkshire. (Ward Hadaway is one firm known to be considering a Leeds office.) The targets are clients with concerns over national or international firms taking an eye off the local market in favour of national concerns . Neither Cobbetts nor Walker Morris considers itself in direct competition with the other, but as the firms take dissimilar approaches to a common goal
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> of profitability, both are
£2bn NHS IT outsourcing deal; Danny Hall at Eversheds advised Caudwell on its £405m sale of Singlepoint to Vodafone. These instructions continue to evade the likes of Staying home Cobbetts and Walker Such a rationale risks Morris arguably limiting both firms’ physical because they do not capabilities: Europe is not a have the resources or consideration, and although the market presence of the firms both take instructhe nationals. Cobbetts’ tions from outside the key clients are still the region, the blue-chip clients Co-op and Matalan, continue to call on the Smart: no need to take Walker Morris to London both of which were nationals – Addleshaw instructing the firm before its Goddard, Eversheds and DLA – for the bigstream of mergers (see box ticket corporate deals. Regionally based below). Cobbetts also has a superstars like Richard Bonnar at DLA have stated intention to break into the clout to attract business such as the basing their strategies for success firmly on a provincial platform, and both are adamant that the London market is not for them.
the housing associations market, something that holds little appeal for the nationals. However, the ambitions of both Cobbetts and Walker Morris are not to challenge the nationals, but to crack a burgeoning Leeds market which the nationals may be beginning to move away from. Success is mirrored in the fact that the aggregate value of banking and finance deals handled by Walker Morris has almost doubled, to £2bn in two years. With the highest PEP figures of any UK firm without a London presence, it is no surprise that the favourite word of Walker Morris chief executive Peter Smart is profitability. It is the reasoning behind every decision the firm takes. Rival firms’ managing partners have been moved to comment on the potential for the Leeds firm in the capital: ‘If Walker Morris opened in London, well…’ But Smart himself is
COBBETTS’ GROWTH HISTORY May 2002 REED HINDS STEWART Turnover rises to
4th
1st
£25m
September 2004 WILBRAHAM & CO Turnover hits
£42.2m
Partners pre-merger 46 post-merger 75
Partners pre-merger 119 post-merger 122
Fee-earners pre-merger 93 post-merger 106 Cobbetts made a declaration of intent with a move into the Leeds market. Few realised this was just the beginning…
Fee-earners pre-merger 226 post-merger 228 The specific capabilities of the small planning boutique prompted this merger, rather than numbers or territorial benefits.
September 2003 FOX BROOKS MARSHALL Turnover grows to
LEEDS
MANCHESTER
3rd
2nd
£31m
Partners pre-merger 87 post-merger 92 Fee-earners pre-merger 131 post-merger 138 Fox Brooks Marshall was targeted for its AIM and OFEX expertise rather than any geographical advance.
60 Legal Business October 2004
May 2004 LEE CROWDER Turnover grows to
£41.6m
BIRMINGHAM
Partners pre-merger 94 post-merger 117 Fee-earners pre-merger 154 post-merger 218 Birmingham was next as the firm closed the ‘golden triangle’ of the Midlands, North West and Yorkshire.
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unmoved. ‘We had a look at London in 1988 with a start-up operation and kept it open for three years, but it took a lot of attention. A London office takes more attention than a regional office, and from our experience there was no need to have one.’ This is not, however, the golden rule. ‘The logic of a strategy of a national (multi-site) firm is that it is underpinned by a London office. It cannot be done with a base in a region, otherwise you have all the problems of overheads without the profits. Without a London office, there will be no national profile. Two regional offices are not more profitable than one; they are less profitable.’
Growing pains If profitability is Smart’s favourite word, it probably isn’t something which is yelled from the rooftops at Cobbetts. Year-on-year increases in fee income, concluding in a 60% leap in 2004, have occurred alongside more static PEP figures. Stephen White points to the fact that the firm is only in its first period in the Birmingham era, and only two years on from the Leeds merger. Its partners, as a result, must be patient. ‘Heavy investment has gone into the firm, and will continue going in over the next few years,’ White says. ‘You must invest for the longer returns.’ Some rivals have sniped at the new additions to the Cobbetts empire. ‘Two mediocre firms merging does not create one super-firm, it creates one bigger mediocre firm,’ warns a managing partner of a fellow north-west firm. Others have made reference to merger partners Reed Hinds Stewart and Lee Crowder as spent forces, once-great firms dying and in disarray by the time Cobbetts picked them up. White denies this: ‘The firm’s mergers have been driven by the [identity of the] merger partners rather than the overwhelming need to go into those business centres. The firms needed a reputation and needed to be available.’ Stephen Hopkins, regional managing partner at Eversheds, has a strategic ambit which runs from Newcastle to Manchester via Leeds, and as a result knows a thing or two about running a multi-site firm. He says time will tell if the strategy will be successful. ‘They made a lot of mergers in a short space of time, which will take a lot of time to bed down, in terms of imposing the culture of
the firm across the offices,’ he explains. ‘In Manchester, the firm is doing well and getting itself around the market, but the test is whether they make a sustained success of it.’ So why do it? ‘Mergers quite often happen for reasons that have not been thought out,’ says Pannone & Partners managing partner Joy Kingsley. ‘As a managing partner, you tend to look at the pros rather than the cons.’ Walker Morris’s 2004 figures show income up 10% and PEP up 5%; for the firm, pragmatism is a happy bedfellow with profitability. Having dipped its toes in the Thames, the firm, and Peter Smart in particular, is once bitten, twice shy. ‘Expansion is inevitable [after a firm opens a second office],’ he says. ‘The firm must have a national presence, and then you start asking why haven’t we got offices in Bristol, Birmingham, Newcastle – we must go elsewhere, must be in all the business areas. Then you must go international, and end up merging with second-rate foreign practices. ‘Would a London office increase the firm’s profitability? There is no point in opening a London office out of pride or because someone else is. A lot of it is to do with ego, and looking
White: aiming to be seen on blue-chip clients’ radar
SOUTH FROM NEWCASTLE Watson Burton’s decision to open a Leeds office comes on the back of year-on-year growth of around 20% since the turn of the millennium. Andrew Gosnay will head a corporate banking and corporate recovery practice that has followed its clients, but is very much geared to sliding into the gap left by the nationals. Gosnay explains: ‘What we’ve seen is that the dynamic movers and shakers have moved out of the Yorkshire region and into management positions, and the star lawyers have moved to London. It leaves scope for a healthy firm to come in and take a slice. ‘Leeds is the financial services capital of the North; the firm is also strong in construction – the whole move made sense.’ The location of Leeds as a passport to the region is also a strong pull. ‘We wanted a base on the trans-Pennine client axis,’ he says. ‘Newcastle’s financial market is run out of Leeds and Manchester, and we wanted to be where the decisions are made.’
at what other firms are doing and following them because people don’t want to be seen as second division. I see clever people, academics, who are clueless in business.’ The firm’s ability to limit its own ambitions is the key to its success, although as Stephen White notes: ‘If you take that argument to its logical conclusion, you could have a small practice operating in a niche area that would be incredibly profitable. But if you stand still, you move backwards.’
Looking abroad Regional firms are full of restrictions. ‘If you are doing, or want to do, top-level corporate work, then you will need a London office,’ accepts Joy Kingsley, whose firm had a blink-and-you’d-miss-it foray into the capital during a short-lived merger with Pritchard Englefield & Tobin in the mid90s. ‘If your aspirations are European, then you will need a London office.’ Stephen Hopkins is in no doubt as to the importance of a London hub in the grand scheme of a national firm. ‘We [Eversheds] see ourselves as an international firm,’ he says, ‘and London plays a fundamental role in the firm’s international offering. The international practice does not exist without London, and although a lot of international work is done out of the regional offices, the gateway is London. It’s the only place in the UK as far as some overseas clients are concerned, even though we are trying to educate them otherwise.’
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in Birmingham. But by Smart’s own admission, the firm has a ‘limited impact internationally’. He explains: ‘About 10% of our work comes from what you might term the immediate local market, 55% from the North in general and 35% from everywhere else. ‘Growing a business in one place does not mean advising clients exclusively from that area.’
All eyes north Hopkins: overseas clients are still London-centric
>
One thing that everyone agrees with, however, is that a London office won’t necessarily open doors to the truly top-level work anyway. So can the work on offer attract the top-quality lawyers? ‘There’s no difficulty attracting lawyers from London, Smart says. ‘It’s partly to do with the quality of life. If you can demonstrate to lawyers that they can do high-quality work, enjoy a good lifestyle, and still earn good money, it’s not difficult. We have good-quality people serving quality clients, and that’s the order it should be in.’ The firm boasts former Slaughter and May, Allen & Overy and Freshfields Bruckhaus Deringer lawyers. Smart concedes that most have some northern connection to which they are returning, but you don’t turn such experience away. Walker Morris has some international clients. One is USbased Caterpillar: the firm advised it on a £100m purchase of the MG Rover parts business
TURNOVER/PEP COMPARISON ADDLESHAW GODDARD
COBBETTS
Turnover
Turnover
£122m £75.3m*
£41.6m £26m Cobbetts’ rapid expansion also £16m £18m boosts its profile; Stephen White hopes any City exodus 2001 2002 2003 2004 2001 2002 2003 2004 would take note: ‘The firm is on the radar of lawyers nationally. Profits per equity partner Profits per equity partner Being able to attract good people to the workforce, it all helps.’ A greater geographical spread, a stronger brand, remains only a theory; the firm’s recruitments have £321k been almost exclusively from regional competitors, £289k most recently poaching IT £206k £253k* £275k* £201k £202k £184k partners from DWF and Pannone. Competing with London or national firms is 2001 2002 2003 2004 2001 2002 2003 2004 also a struggle – the top of *Figures as Addleshaw Booth & Co equity at Cobbetts is around the equivalent of the bottom of influence in the running of a firm, is equity at DLA and Eversheds. somewhere where they would be playing Being on the blue-chip clients’ radar is out of the top sphere.’ another objective, White says, even if the Walker Morris’s static partner numbers corporate work will escape the firm. ‘If we have led to concerns about the feasibility of can do the property, employment or litigabreaking into the most rewarding partnership tion work for these clients, we’d want a bit outside London. One recent departee, tax of that,’ he confirms. Stephen Hopkins has specialist Simon Moulden, who moved across an alternative theory for City migrations to the Pennines to Pannone & Partners, denies a single-site regionals: ‘Where they could go, glass ceiling exists at his former firm. ‘Walker if they wanted to stop working for the big Morris thrives on internal promotion, it isn’t corporations and maybe slow down a bit, big on external recruitment,’ he explains. where they would perhaps have more of an ‘You have to prove your worth, certainly, as the equity rewards are very high, but for me there was no issue about becoming an equity partner there.’ It is unsurprising, perhaps, that the firm he’s chosen to join is similarly single site. ‘Working Peter Smart, Walker Morris in the regions, it depends where your priorities lie,’ Moulden
‘There is no point in opening a London office out of pride or because someone else is. A lot of it is to do with ego.’ 62 Legal Business October 2004
£125.2m
£88.5m*
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DLA
EVERSHEDS
HAMMONDS
WALKER MORRIS
Turnover
Turnover
Turnover
Turnover
£275m £233m
£252m
£296m
£285m
£227m
£204m £176m
£123m
2001
2002
2003
2004
Profits per equity partner
2001
2002
2003
2004
Profits per equity partner
2001
£135m
2002
£137m
£136m
2003
2004
Profits per equity partner
£26m
£31m
£36m
£39.5m
2001
2002
2003
2004
Profits per equity partner
£520k £452k
£459k
£495k
£475k
£395k £302k
2001
2002
2003
2004
2001
£287k
2002
£308k
2003
£330k £310k
2004
2001
£369k
£446k
2001
2002
£330k £275k
2002
£272k
2003
2004
2003
2004
Source: Legal Business
adds. ‘It’s a work/lifestyle balance. If you want the sexy work, the mega deals, especially the international work, then you need the international network and the size and resources that only a London firm can provide.’ Not that the road to London is paved with gold. ‘London is a double-edged sword,’ he points out. ‘Firms are perceived as Magic Circle or not. It can raise your profile, but you have to compete on salaries. I’m not sure how the London presence helps Addleshaws or Hammonds.’ Tom Bridgford made the move north when he left Macfarlanes to head Hammonds’ IP department in Manchester. Again, personal reasons dictated the decision – he’d started a family and didn’t want to raise his children in London. However, his professional priorities were clear. ‘I wanted to find a job that was as good, and this is as good, if not better,’ Bridgford says. ‘People in London would be surprised how hard we
work, but you certainly aren’t embarrassed about saying you have a family and you want to spend time with them. You’ve got to choose your firm. There are not that many major firms in Manchester that handle the sort of work I wanted to do. You’ve got to get lucky.’
City lights Addleshaw Goddard’s London investment has been substantial. ‘To grow the firm’s London presence to at least as big as that of Manchester or Leeds was always part of the Addleshaw Booth & Co strategy,’ says senior partner Paul Lee. ‘A London office alters the work done by the firm and alters the profile. It is fundamental to the
ambition of becoming a leading UK firm.’ Lee is careful to point out the extent to which the firm has tried to pre-empt the potential workforce issues generated by a London office: ‘Salaries are not weighted. Partners are not paid more depending on which office they work out of. The client partner for X bank could be based in Leeds, Manchester or London.’ London-centricity is monitored closely. Joy Kingsley asserts, as do many of the leading regionals: ‘We receive CVs from lawyers at national firms who want to leave because the focus is no longer on their office.’ Walker Morris stands firm; Cobbetts is on the warpath. If the nationals are neglecting to ‘mind the shop’ in the course of conquering London, the regional market is ripe for plundering. For these provincial giants, the risky promise of the City is outweighed by safer rewards on their doorstep. LB sam.kenworthy@legalease.co.uk
October 2004 Legal Business 63