From London to Aberdeen, Scotland’s law firms are branching out and the English are moving in. But is the success of some Scots firms’ London operations a cause for concern among those rooted to Edinburgh and Glasgow — or does London success come at a price? Ed Thornton reports
Staff at Shepherd & Wedderburn’s London office have probably learned not to become too attached to their working environment. In late January this year, the leading Scots firm changed office for the third time since it launched in London five years ago, moving its lawyers a short walk across the Square Mile from Arthur Street to new premises more than twice the size at Condor House, in the shadow of St Paul’s Cathedral.
The rapid growth experienced by its London practice prompted the move, particularly in the areas of property, corporate, technology and tax. “We have seen significant growth in our London operation and it is easy to forget we have only been there for five years,” says chief executive Patrick Andrews. “The opportunity to be part of something entrepreneurial and dynamic is why we have been able to attract people of calibre.”
Shepherds has by no means been the only Scots law firm making inroads into the London market. As HBJ Gateley Wareing senior partner Malcolm McPherson notes: “The biggest Scottish firms are experiencing rapid growth in London and the south more than anywhere else. Scotland is a small economy so you have to cast the net wide to have continued growth.”
HBJ Gateley secured its first foothold in the English capital in April after brokering a merger with London shipping boutique Shaw and Croft, creating a 68-partner practice. “We are one of the principal shipping outfits in Scotland and the opportunity to take a shipping practice of high repute was very appealing,” says McPherson. “Having a London base is very important in the industry. It is already proving a success and is trading well.”
Meanwhile, big four Scots law firm Dundas & Wilson has seen its London office — which relaunched in 2002 with just six people — grow significantly over the last 12 months from 100 to 150 staff, with office space being expanded by a third. It has also pulled off some notable lateral hires for its London office, including Herbert Smith property litigation head Martin Smith and LG insolvency veteran John Verrill, whose move prompted the launch of the firm’s City restructuring practice.
Maclay Murray & Spens has also been pushing its efforts in London, with the financial services compliance company Regulatory Solutions, which it acquired last year, proving a profitable add-on to its legal offering.
Scottish focus
But while a number of Scots heavyweights continue to pursue expansion in the London market, a significant number of respected firms north of the border still reject the idea of planting their flags in the capital.
Burness chairman Philip Rodney says: “We do not have an English presence — and that is deliberate,” adding that the firm’s strategy has been to win business by focusing on the top end of the Scottish market “without the distraction of seeking to enter the lower end of the London market”.
When Rodney was appointed chair of the firm several years ago, the management committee did mull over the possibility of venturing into London. “We thought we would rather aspire to be the number one firm in Scotland than number 67 in London,” he recalls. “We know our market here and we are getting an increasingly large market share.”
Some of the firm’s client wins over the last year or so demonstrate that it may not be necessary to travel south in order to pick up lucrative business. For example, the firm has landed new property instructions from Somerfield, corporate finance work from Standard Life and Bank of Scotland and employment work from Sainsbury’s, among others.
Another firm that is resolutely keeping its sights on the Scottish market is Harper McLeod, whose chairman, Lorne Crerar, says: “We have no intention of opening in London — our strategy is to be a completely Scotland-focused firm. The weakness of our competitors is that they are too focused on London.”
Crerar is optimistic that Scotland will continue to be a fruitful market for law firms, especially if it embraces Clementi-inspired legal services reforms and becomes a less regulated environment. He also cites the change in government north of the border as evidence that the Scottish market is far from static. “A new administration injects enthusiasm and we should not underestimate that. There are still significant opportunities for a very defined Scottish-focused strategy.”
Echoing the sentiments at Burness and Harper McLeod, Tods Murray executive partner Peter Misselbrook says opening up in London is not on his firm’s radar, preferring instead to nurture existing referral relationships with City firms such as Clifford Chance (CC) and Allen & Overy which the firm partners with on UK-wide transactions. “We are a substantial player in Scotland but we are not CC,” he says, sounding a note of realism. “There are firms of significant size that make Scottish firms look small. You need to be clear why you are going down to London.”
Maclays chief executive Magnus Swanson takes a diplomatic line on the London debate, arguing that each firm will have a different approach. “I have absolute respect for several of the vocal proponents of the ‘let’s not open in England’ view — several are excellent firms,” he says. “It is a different strategy as opposed to a wrong strategy.”
London presence
In some cases it appears that the focus of some Scots firms on London could be playing into the hands of rivals who remain focused on the Scottish market. Fraser McMillan, head of Pinsent Masons in Scotland, argues that many senior associates at firms with a strong London presence are told their partnership prospects depend on their willingness to move south. “A lot of people are encouraged to go to London, which they are not prepared to do — so we have picked up people [as a result].”
“We are not distracted because we have a big presence in the London market and can pull in big deals,” he adds. “There is a defensive element to what the Scottish firms are doing. They see us having a presence in Scotland and they want to make sure they can offer full service to clients and not go to other firms.”
However, those Scots firms with a strategy for growth in London are keen to emphasise that they are not neglecting their operations north of the border.
For example, HBJ Gateley’s entrance into the London market did not distract it from taking advantage of merger opportunities back home. The following month the firm announced a tie-up with Glasgow and Edinburgh firm Boyds Solicitors. McPherson says: “We have worked purely as a corporate recovery practice in Glasgow, so Boyds’ property and corporate practice gives us a better platform to work off in Glasgow.”
Maclays has also been keeping its eye on rival practices that could add to its offering in Scotland and, in May, sealed the takeover of the corporate and real estate teams of Aberdeen practice Ian Smith & Co.
Firms are also eager to point out that their English and Scottish offices run as one UK practice, rather than a disparate number of regional offices working in isolation. Shepherds’ Andrews says: “We do not set individual fee targets for teams or have separate profit centres. We run one business and make sure we are there for clients. Competition is out there and should not be in here.”
This view is echoed by Dundas’ Shaw, who says the firm is focused both on growing in Scotland and maintaining a strong presence in London. “Our strategy is to maintain strength in Scotland but also to assist our clients who want our help in the London market,” he says. “There is no geographical structure to the firm. We do not believe in having inter-office competition, because it creates a silo mentality.”
Number crunching
One of the reasons that Scots firms appear content with their current strategies — be they expanding in London or remaining focused on Scotland — is that they are currently performing well financially.
Dundas’ results for 2006-07 reported turnover up 15% to £60.8m from £53m the previous year, with a modest net profit rise of 4% to £22.1m explained by its heavy investment in areas such as office space and training.
Meanwhile, rival Scots heavyweight McGrigors announced its interim results for the six months to March 2007, reporting a turnover rise of 25% to £29.6m, which can be attributed to a string of lucrative instructions including advising the Abu Dhabi State National Energy Company on its $550m (£271m) acquisition of assets from Talisman Energy and advising Michael Cannon on the £155.1m sale of pub group Eldridge Pope to Marston’s.
Maclays also demonstrated further growth in its 2006-07 results with average profits per equity partner breaking the £300k barrier, rising by 15% from £275,000 last year to £315,000 this year, while Brodies announced a turnover rise of 43% to £30m and gross profits up 33% to £11.6m.
Capital projects have been a strong source of revenue for Scots firms. The last year has seen Tods Murray act on a string of private finance initiative/public-private partnership transactions, including the £150m North Lanarkshire Schools project and the £138m Bassetlaw Schools project.
Scots firms have also identified public sector work as a key growth area and have been ramping up their capability accordingly. HBJ Gateley’s McPherson says: “We are aware that M&A and corporate have been booming for so many years that the evolving public sector is an interesting counter-balance to that.” Dundas hired Colin Boyd QC to head its public law practice, an appointment that Shaw says is “already producing results”.
Heading north
While several of Scotland’s major law firms have endeavoured to expand their presence south of the border, examples of English firms moving into Scotland have been few and far between.
Consequently, many of the Scottish market’s players took note when southwest firm Bond Pearce recently unveiled plans to launch in Aberdeen with a team from McGrigors in a bid to tap into the city’s booming energy market.
Bond Pearce energy partner Luke Gabb, who has led the Aberdeen office opening and oversaw the hire of the McGrigors team, says the firm is looking to capitalise on Aberdeen’s buoyant energy sector.
“For some time, the strategy has been that we want to grow energy as a whole, and oil and gas in particular,” he says. “It follows that if you want to build, Aberdeen is a good location because it is the oil and gas capital of Europe, in terms of new supplies. Aberdeen is also becoming the centre of offshore renewables. It makes real sense to have an office there.”
Partners at Scots firms have expressed surprise at the move, but acknowledge that the thinking behind it is sound.
“I did not have Bond Pearce on the radar, but Aberdeen has a good oil and gas market and to that extent I can understand the logic,” says one partner at a big four firm. “Bond Pearce is focused on one specific area, which I think is quite smart,” says another.
However, Aberdeen is a tough market, with many good lawyers boasting established local relationships. Many in the market acknowledge Bond Pearce’s decision to be ‘a bold move’.
The firm’s Aberdeen arm formally opened for business on 6 August and Gabb is optimistic about the firm’s prospects in the market. “We are very gratified by the response we have had from the transferring team’s clients. They have contacted us and they want to join.”
Bond Pearce will be looking to position itself as a competitor to McGrigors, which last year secured a significant presence in the jurisdiction’s energy sector when it snapped up the energy practice of Ledingham Chalmers. “I would like to think that deal captured the market,” says McGrigors managing partner Colin Gray.
Gabb will presumably be hoping that in a year’s time he can say the same of Bond Pearce’s bold — but apparently logical — move into
Aberdeen.
