BGL, best known for being the owner of comparethemarket.com but also the owner of motor and bicycle insurance businesses, has acquired Minster Law.
Minster Law was established in 2006 and since its early days has worked closely with BGL, growing to a staff of 800 and revenues exceeding £100 million p.a. It specialises in personal injury claims (particularly motor traffic accidents) and is therefore a natural match for a motor insurance firm. Since the banning of referral fees between insurance and law firms, a number of other insurance companies have made moves into the legal market - most notably Admiral Insurance and Ageas - and many have voiced doubts about the financial viability of small independent PI specialist firms.
These acquisitions have been made possible by the Legal Services Act, which has enabled non-lawyers to own law firm businesses, with SRA approval.
All of the 800 Minster Law staff, based in York and Wakefield, are expected to be retained post acquisition.
Legal Services Watch
A blog focusing on developments in legal services following the enactment of the Legal Services Act, and other issues of interest to law firms.
Friday 31 May 2013
Wednesday 8 May 2013
Parabis nudging towards Top 20 slot with latest merger
Plexus Law, part of the Parabis Group backed by PE firm Duke Street, is merging with insurance dispute firm Greenwoods. The merger will create a £90 million defendant insurance litigation business.
Parabis also owns Cogent Law and the three businesses in aggregate will be turning over in the region of £150 million, meaning Parabis will be nudging a coveted top 20 UK law firm slot.
The deal is expected to complete this month and the Greenwoods brand will be retained alongside that of Plexus.
Parabis also owns Cogent Law and the three businesses in aggregate will be turning over in the region of £150 million, meaning Parabis will be nudging a coveted top 20 UK law firm slot.
The deal is expected to complete this month and the Greenwoods brand will be retained alongside that of Plexus.
Friday 26 April 2013
Hogan Lovells spat puts the spotlight on remuneration for law firm management teams
Law firm remuneration is always a controversial topic.
For the firms which have stuck with pure lock-step arrangements
there are often complaints that the system does not reward high performers well
enough, or penalise those who rest on their laurels at the top of the lock-step.
For firms which have introduced performance related pay, there are
often fierce arguments regarding what type of contributions should be most
highly rewarded (Is personal billing more important than nurturing a good
pyramid of associates? Is winning a new
client for another part of the business more important than one’s own fee
earning performance? How do you deal
with a star biller who won’t collaborate?).
But always up there amongst the hottest topics tends to be how to
remunerate non-fee-earning roles, and particularly the senior management
positions.
Most of the wrangling, though, tends to stay behind closed doors; lawyers
are notoriously tight-lipped about money and don’t like to air their dirty
laundry in public. That is why it is
somewhat surprising to have seen a relatively public spat within Hogan Lovells,
whose new bonus system has provoked some quite public criticism from partners
that the process is not sufficiently independent, that it over-rewards the international
management committee (IMC) members, and that it has led to fee earners “hogging”
client relationships and a consequent diminishing of the collegiate atmosphere
within the firm.
A number of partners (and ex-partners) have
expressed dissatisfaction about bonuses complaining that only a small number of
fee earning partners have been well remunerated. This is hotly denied by the firm, who say
that there is already an independent three-member compensation committee led by
the Chairman, that IMC members are not involved in deciding their own bonuses,
and that the allegation that it is IMC members who have received the largest
bonuses are simply incorrect.
Whoever is right and wrong, this is not good publicity for the firm.
In boom times, of course, such unedifying squabbling is less
common. When there is plenty of largesse
to distribute and most partners are seeing their total remuneration rise, then
rebellion tends to be somewhat muted.
But Hogan Lovells, like many other firms in tough times, is facing decline
in global revenues for 2012 of 1.9% and a 6% drop in average profits per equity
partner. That means of course that as a
simple mathematical consequence the majority of partners are likely to see
their total remuneration package decline, unless there is a cull in their
numbers. So when the spoils are more meagre, the
jostling for position becomes much more noticeable, and in particular the
contribution made by “the management” is (rightly) subject to more scrutiny.
Until relatively recently, law firms tended to have a very flat
structure, and the managing partners were also expected to be fee earners. It
was quite common to see them maintaining a significant client role, even in
large firms, as the role of management was not seen as one which was
particularly onerous. Furthermore, those
elected to senior roles were often drawn from the ranks of the star billing
performers, and so their overall contribution to the success of the firm tended
not to be questioned, despite the fact that the management role itself was not
necessarily very highly valued. As law firms
have grown, often into multi-national businesses, then the management roles
have in most cases become full time tasks, meaning that fee earning roles
usually have to be relinquished. But the
esteem with which law firm management is held is still patchy. Whilst those occupying have a tendency to view
their roles as meriting higher remuneration that fee earners, as they are
superior in the hierarchy, there are others who still see them as little more
than glorified administrators. Those who
are pulling in the big fees in the here and now will often argue that it is they
who are the life blood of firms, and they should be the most richly
rewarded.
So who is right and who is wrong?
There is no one simple answer to this, as no firm is exactly the same as
another. But I am always wary of remuneration
systems which continue to reward management teams very richly when profits are
falling. A good management team can make
a huge difference to the financial performance of a firm, even in a recession, by
trimming resources to fit, or by ensuring that leverage is at its optimum, for
example; whereas individual fee earners can make less impact. To my
mind, this means that the senior managers should be amongst the most highly
rewarded when times are good, but should take the pain if profits are
falling. Fee earners, on the other hand,
I would argue, should see less volatility in their total remuneration.
Having structurally high remuneration for senior management roles
regardless of the overall profit performance of the firm leads to an unhealthy
situation where star fee earners may be driven towards those roles in order to
maximise personal reward. Quite apart
from the fact that there is little proven correlation between the ability to
earn fees and the ability to undertake a complex management role, this
remuneration situation is likely to lead to a draining of a firm’s best talent
away from the vital task of fee earning.
Having a high degree of variability in management remuneration, on the
other hand, will ensure that only those with a genuine talent for the role are
likely to want to put themselves forward.
Thursday 11 April 2013
Axiom Fund failure claims another law firm victim
The Axiom Legal Financing Fund scandal continues to cause a ripple
effect in the legal industry.
Not long after Axiom was placed into receivership by the Cayman court following
serious allegations of mismanagement and malpractice, Tandem Law put its entire
workforce on notice that they were at risk of redundancy. Now we see Ashton Fox, the Preston based law
firm, has been acquired by a rival in a pre-pack deal following its own collapse
into administration.
Both law firms were recipients of significant funding from Axiom to
finance client group action litigation, and were plunged into crisis following
the Fund’s sudden closure.
Parabis off to a flying start as an ABS
Parabis, the
parent company of Plexus Law and Cogent Law, has turned in an impressive first year
of trading as an ABS entity, seeing its revenues rise 8% to £108m and its
profits rise a whopping 41.4% to £18.4 million.
The business was launched in 2000 as an LLP
by Tim Oliver (formerly partner of Berrymans Lace Mawer), and provides a range
of legal and claims-handling services for the
insurance sector. It has been something
of a trail-blazer in the post-Legal Services Act world, being the first
PE-backed ABS structure, following a £50m investment by Duke Street.
Since then the firm has been expanding
rapidly. In November it launched a Scottish office in Glasgow and has followed up
6 months later with the establishment of an Edinburgh office, to be staffed by
a partner-led team poached from Brodies.
There has been
much discussion on whether law firms and PE houses make easy bed-fellows, but
the early signs for this particular marriage appear good.
Monday 8 April 2013
Insurance giants shake up the legal services market
Insurance companies are making their anticipated moves into the legal
services market following the Jackson reforms which came into effect on 1st
April, banning the payment of personal injury referral fees. Referral fees became notorious in recent years for having spawned an unwelcome compensation culture in
the UK, with personal injury claims relating to motor accidents and whiplash injuries being
particularly prevalent.
The RAC has agreed a 5 year commercial deal whereby Quindell Portfolio,
the AIM-listed ABS firm, will manage all before-the-event
(BTE) legal expenses work generated by RAC’s huge motor book, which accounts
for some 7 million customers and approximately 10% of the UK market. In a highly innovative deal, instead of
paying a referral fee for claims as it would have done in the past, Quindell
issued warrants for more than 250 million shares to RAC valued at 13p each,
the equivalent of a £32.5m shareholding. If the warrants are exercised, they
would give the RAC a significant financial interest in Quindell. The deal as
structured gives Quindell a significant cash-flow benefit and means it will not
need to draw down the £80m funding it raised to support its working capital
requirements.
Quindell will provide a comprehensive service
for all RAC customer personal injury claims, including medical reporting, rehabilitation
and auto accident repair. The agreement follows a successful pilot of
the scheme which is claimed to have reduced claims costs by 20 per cent.
Admiral, the insurance giant, has also decided that a strategic move into
the legal services market is warranted, and has chosen to effect this through two
separate joint ventures with existing law firms.
The first joint venture, to be known as Admiral Law, is with Bristol law
firm Lyons Davidson and will cover Admiral’s main book of business.
The second, to be known as BDE Law, will be with Cardiff based Cordner
Lewis, and will cover 3 subsidiary motor claims businesses owned by Admiral –
Bell, Diamond and elephant.co.uk.
The SRA has granted alternative ABS
licences for the two ventures, effective 1st May 2013.
It seems that Admiral are not expecting
the moves to be a major profit contributor, but believe they will improve customer service by being
able to handle claims in house
Finally, insurance giant Ageas has announced a partnership with personal
injury law firm NewLaw Solicitors after completing its ABS conversion, to be
called Ageas Law. The firm will provide
legal services for customers making non-fault personal injury claims sustained
after a motor accident.
One might speculate which is the bigger driver for these changes – the Legal
Services Act or the Jackson reforms – but whatever the answer it is clear that
there are huge changes sweeping the personal injury and allied insurance industries. It seems that smaller independent PI firms
are going to have a very tough time in the future, unless they are one of the
firms swallowed up by the major insurers.
Saturday 30 March 2013
Are law firms getting cold feet on outsourcing?
There has been something of a trend towards outsourcing in the
legal profession in recent years, mostly in relation to back office functions
but sometimes also in relation to client work.
It is interesting therefore to see that two firms which have gone down
that route, Osborne Clarke (“OC”) and CMS Cameron McKenna (“CMS”) have both
decided to scale back part of their outsourcing agreements with Integreon.
OC set up its arrangements with Integreon in 2009, transferring a
number of its back office staff to the outsourcer. 65 of those former OC employees will return
to OC from Integreon following the changes to the outsourcing arrangements 4 years
into the 7 year contract. OC will bring
back in-house client relationship management, IT, and events management. OC is not cutting all ties with Integreon,
which will continue a number of functions including information services and business
intelligence. It is not yet clear how
many jobs will be lost in the process, but it is expected to be only a small
number.
CMS, who have used Integreon since 2010 after agreeing one of the
largest outsourcing contracts the legal market has ever seen (rumoured to be
worth £600 million), have announced that they are looking for a different
third-party provider to take over one element of the services currently
provided by the outsourcer. They did not announce publicly which service this
was.
So what should be deduce from all of this? Is it a sign that law firms are having second
thoughts about the outsourcing model? Or
is it that there are problems at Integreon which are unlikely to affect other
providers?
OC are bringing a team of people back in house, but are also
moving an element of their outsourced services to an alternative provider,
Mitie, whereas CMS are simply looking for an alternative outsourcing
provider. This would seem to suggest
that both firms still believe that outsourcing can be an effective solution,
but that they are not happy with all of the elements currently serviced by
Integreon. It is clear that neither of
the firms have lost faith in Integreon entirely – both were keen to stress that
they would continue to work with the company, and indeed it appears that CMS
are expanding the amount of legal process outsourcing that Integreon carries
out on its behalf, so Integreon would seem to be getting something right.
What I suspect that is
going on here is that firms are learning that outsourcing a huge range of
functions, both back office and in some cases client facing work, to a single
provider is a big ask. There are very
different skills sets required to provide an outsourced human resources
function, or an IT help-desk, than to have teams of legal researchers. Just because a business can run a top class out-sourced
office management function, does that necessarily mean it is also well equipped
to undertake client facing “KYC” requirements or document support? Whilst it might be tempting to take the easy
route of putting all out-sourcing requirements with one single provider,
perhaps the experience of CMS and OC is showing us that firms need to be
cautious about doing this if the range of services being out-sourced is
particularly broad.
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