Deals and the dealmakers: talk gives way to action as mergers go ahead

WAITING for mergers in the Scottish legal market is a bit like waiting for a bus; you stand, looking expectantly, for ages -– then two come along at once.

The two deals on the table – one done, one still to be signed off – are very different. The subsumption of Fyfe Ireland into Tods Murray is an interesting piece of Scottish business, but small beer beside the behemoth to be created if McGrigors and Pinsent Masons decide they like the cut of each other’s jib.

If the merger goes ahead, the new firm will be the 12th largest in the UK, with more than 1,200 lawyers and a turnover of £282.5m.

Pinsents’ profit per equity partner is higher, at £400,000, with McGrigors averaging £247,000. However, McGrigors profit margin is higher, at 29 per cent compared to 21 per cent.

Reaction to the announcement has been largely positive, inside and outside the legal firmament; it is widely seen as sensible, even predictable. It is the first big UK merger to be mooted with a strong Scottish component following major activity in the English market last year, with the Clydes-BLG and Beachcroft-DAC deals.

The desire of McGrigors to develop its scale and reach is no surprise, given years of referring to itself as “UK law firm McGrigors”, and expansion in London, Northern Ireland, Manchester and Qatar – plus a referral agreement last April with US firm Husch Blackwell.

Is there sentiment left for the firm’s Scottish roots? McGrigor Donald dates back to the early 1870s in Glasgow but one legal commentator argues a merger would effectively relegate the Scottish operation to a branch office: “There is no doubt the balance of power would be in London and that has implications for the business in Scotland.”

The sense of a shift in the balance of power – towards London, but increasingly further afield – was clear in the statement by Pinsent Masons and McGrigors. It said the new firm “would also provide a strong platform upon which to grow internationally, with a continued focus in Europe, the Gulf and Asia Pacific”.

McGrigors has no presence in the far east, while Pinsents has offices in Beijing, Hong Kong, Shanghai and Singapore. It also has a Dubai base and McGrigors would extend its international reach if the deal goes through.

No-one denies the lure of global reach, but insiders say this does not mean McGrigors turning its back on Scotland.

“Far from it,” said one source. “A merger would create the largest legal firm in Scotland by some distance – and add to what we can offer our Scottish clients.”

Not everyone agrees. One former Pinsent Masons partner quoted in The Lawyer says: “McGrigors has been looking for a merger partner for a while. You wonder what the strategy is. Why does Pinsents want a bigger presence in Scotland? The days of bigger law firms being better are long done – it’s all about profitability now.”

Why does Pinsent Masons – with UK offices in Birmingham, Leeds and Manchester, as well as Edinburgh and Glasgow – want a bigger Scottish presence? Perhaps simply this: while the Scottish legal sector is at best static, there is plenty of good work to be had – if you understand what clients want and have the capacity to deliver.

Robert Carr, chairman of Anderson Strathern, made that point last week, and says of the proposed merger: “The new firm would have an excellent balance sheet, good financial husbandry and be of interest to external investors in a way the two firms alone would not. Its infrastructure and project management capability would be hugely attractive in developing countries .”

Another interesting factor will be the name. McPinsents is one facetious suggestion, but the status of ‘McGrigors’ in the new firm will be worth noting. Pinsent McGrigors perhaps – or does that sound too much like a glass of Pinot McGrigio?

Will the McGrigors name disappear altogether, like Fyfe Ireland? Greig Honeyman, its final managing partner, admits to mixed feelings over losing the brand: “Of course it’s sad. It’s a fine name established on the legal scene for around 180 years in various guises. But a dynamic taking you to merger is every bit as good as sticking with tradition.”

The strong driver in the Tods Murray-Fyfe Ireland deal, which came together over a couple of months via ‘conversations’ rather than a predatory approach, is a beefier private client service built on quality and client care.

Tods Murray, while still strong in this area, has lost key players from its private client team and the Fyfe Ireland additions increase its strength and capacity. David Dunsire, executive partner of Tods Murray, says: “The firms have the same ethos. It’s about service to clients, high quality and strength in depth. The combined firm will really challenge the marketplace. This is about growing in a managed way – it is strategic, not just about bolting on turnover.”

Honeyman adds: “We thought for some time a merger was right to take us to the next level, to give us more for our clients and more resources. We are a small, high-quality firm that punches above our weight – which is fine, unless all those punches don’t all come together.”

Two senior figures in different large Scottish firms are critical of the move, however. One says: “I’m not sure a bigger version of what they had without a change in strategy will make a big difference.”

Another argues: “I think the Pinsents McGrigors merger is offensive – driving out into the market place, looking for new opportunities. I think Tods Murray-Fyfe Ireland is a defensive deal.”

Not so, insist Honeyman and Dunsire. “It is not defensive; we have come together to create a platform for growth,” Honeyman says. “There is plenty of good work out there and we are ideally placed to get it. We have acted for a lot of our clients for many years and they are delighted we have done this.”

Honeyman, fellow partner Drew Taylor, eight solicitors and six support staff will continue the drift from Edinburgh’s old legal hub to the new when they today relocate from Charlotte Square to Fountainbridge.

Dunsire does not rule out further mergers in 2012, though they would have to be ‘strategically right’ – and says 2012 might prove to be the year of consolidation across the entire Scottish legal market: “We’ve been talking about consolidation and it hasn’t really taken off, but I think we’ll now start to see movement at all levels – big firms, medium-sized firms and high-street level.”

Alistair Morris, chief executive of Pagan Osborne, agrees – and links the trend to the wider drive to modernise the profession.

“Putting economic issues aside, the legal marketplace is being forced to change,” he said. “Some legal services are becoming more commoditised and clients demand even better service for less. The profession has to change its mindset towards traditional partnerships as the only viable business model [and change working practices] if it is to compete.

“Joining forces with another firm to add strength in depth or build market share makes sense, but on its own may not be enough. The focus on profit per equity partner encourages short-termism and stifles inward investment.”