Cobbetts calls in the Administrators

I have blogged before on the question of how quickly a professional services business can descend into a death spiral once the confidence of the partners is lost and they start to depart (most notably in the case of Dewey & LeBoeuf  (http://www.blogger.com/blogger.g?blogID=759712752327313714#editor/target=post;postID=4182441567666633396.)

The latest casualty of this phenomenon seems to be troubled northern law firm Cobbetts, which is set to enter administration in an attempt to secure a fire-sale of its business.

Cobbetts has almost 500 staff and 74 partners across 3 offices.  In 2007/8, before the financial crisis, the firm was performing strongly, turning in revenues of almost £60 million.  Corporate work was booming, and the firm expanded rapidly.  However, it was hit hard by the financial downturn and managed only £45.2 million of revenues for the 2011/12 financial year.  Given the significant fixed costs associated with the expansion during the boom years, this appears to have been a disastrous scenario. The management team attempted to address the problem through three separate redundancy rounds – a necessary step but something which saps the morale of a people-led business – but to no avail.  Four partners then defected to Gowlings, and another two to Gateley last year, which must have led to a greater crisis of confidence for those remaining, and so the spiral began.

In an attempt to reverse its decline, the firm considered a number of merger opportunities – most notably with DWF last year, but talks collapsed because of the market uncertainty.  It would, perhaps, not be entirely surprising if DWF emerges as an acquirer of the business through the administration process.

It is perhaps surprising that Cobbetts is the first major failure of a UK law firm since the fall of Halliwells in 2010, although the UK office of Dewey collapsed as part of the larger global group.  I suspect that, sadly, more may follow.