Tough times for mid-tier law firms have long been predicted but the doom-mongering has proved, until recently, consistently premature. Perhaps that is because this is a band of firms that is defined mainly by what it is not (international or boutique). Nevertheless, the financial results and news of job cuts emerging from a sizeable proportion of this amorphous group suggests we should be dusting off those half-forgotten critiques.
One reason is obvious: this band is singularly exposed to a property market buffeted by global credit turmoil. Indeed, the long, debt-fuelled boom in the UK’s real estate market — which was enough to rehabilitate a practice area in danger of being ejected from the full-service model — explained much of the revival of the UK mid-tier while larger firms struggled to adjust to the post-dotcom slump. So recent weeks have seen a stream of firms with substantial property exposure, such as LG, Halliwells and Beachcroft, announcing disappointing financials. Likewise, blame for Howard Kennedy’s announcement last week that it was making the deepest job cuts yet seen this year has been laid at the door of the property market. And while some areas of real estate such as funds have been more resilient, other firms, like Dickinson Dees, have suffered painful exposure to a liquidity-starved residential market through bulk conveyancing arms. Even Berwin Leighton Paisner, that poster boy for upwardly-mobile mid-tiers, this year announced that its profits have edged downwards (admittedly by a hardly-disastrous 6%).
There are other bad omens. For one, real estate-heavy firms have in recent years built their corporate teams off the back of the Alternative Investment Market. For years this proved successful but the UK’s junior stock market started suffering well before the crunch hit. This means this band has not even had the run-off work that has kept the wolf from the door of more broadly-focused corporate rivals. As dangerous, the paranoia and rigour that used to distinguish the mid-tier had in many cases given way to a scatter-gun expansionism that has created unwieldy practices. In contrast, larger firms, mentally scarred by the damage inflicted on their bottom line during 2002 and 2004, looked leaner and more focused even as the bull market raged.
And the mid-tiers have not had the advantages of international exposure or the dumb luck with currency movements that has lifted top 15 practices. That doesn’t mean the mid-tier is history, but the model is about to get the stress-testing it narrowly avoided during the last downturn. Some of its number will be found wanting.
