Co-op to offer £99 divorces

In a week when the papers were reporting that two lawyers had between them squandered almost the entirety of their joint assets in thrashing out an acrimonious divorce, the Co-operative Legal Services (CLS) has announced an initiative which promises low cost, jargon free family law advice on a fixed fee basis.

The service range will cover divorce, child protection, mediation and financial issues.

CLS are starting initially with a London-based team of 22 lawyers, but intend to have five regional hubs up and running shortly.  The services will be marketed through its 2,800 local supermarkets and 350 bank branches, giving CLS a significant advantage over its private practice competitors in terms of brand-awareness. They have gone public previously with a stated aim to revolutionise the provision of legal services in the UK, and to create 3,000 new jobs in the sector.

It is rumoured that CLS will offer plain vanilla divorces for a fixed fee of just £99, and pre-nups for £950.

Martyn Wates, deputy group chief executive of The Co-operative Group, said: “As a trusted, ethical and approachable provider offering real value for money we intend to bring a refreshingly different approach to family law. At a time of major changes in legal aid, we believe it’s vital to make it as easy as possible for people to gain access to justice. We are doing this by providing an innovative approach that will appeal to those who are currently reluctant to access family law services.”

LDC pip Bowmark to the post on Keoghs?

Insurance law firm Keoghs has confirmed that once it receives its alternative business structure (ABS) licence it will take external investment from a private equity investor.  This will come as no surprise to many, as the firm stated as far back as February 2012 that it was in exclusive talks with Bowmark Capital regarding investment.  However, what may come as more of a surprise is that, according to the Manchester Evening News, it is not Bowmark but LDC, part of the Lloyds Banking Group which will be partnering with Keoghs if SRA give their consent to the deal.  According to the paper, LDC trumped Bowmark’s offer late in the day.

Keoghs are for the moment remaining silent on the identity of the investor, although they have confirmed that they have reached agreement with a party, subject to SRA approval.

Keoghs is a defendant insurance claims specialist with 1,000 employees across offices in Bolton and Coventry. Established in 1968, the firm represents insurers and councils and reported fee income of £55m in 2011.

The external funding that they are seeking will be targeted at accelerating the development of complementary services and further investment in people, processes and infrastructure.

SRA finally gives the green light to Duke Street/Parabis

After many months of waiting, Parabis Group has finally obtained approval from the SRA to become an alternative business structure - the first private-equity backed firm to take up the business model.

Private equity firm Duke Street agreed last year to invest in Parabis, which owns Plexus Law and Cogent Law, but it has been a long drawn out process to obtain regulatory consents to the transaction. The SRA has attracted some criticism for the time delays in issuing licences since the new regime began in January, although over the summer there has been some pick-up in the rate of authorisations, with 20 approvals now having been granted.  The Parabis transaction, being the first time the SRA had had to consider a private equity backed structure, was always going to attract close scrutiny, but Duke Street will be happy now to be able to move on to the next phase.  

The licence now gives the green light to the group to start pursuing the group's buy-and-build strategy.  it is understood that Parabis Chief Executive Tim Oliver is already in discussions with a number of firms, and hopes to complete at least one transaction during 2012.  The longer term aim is to have its law firm business sitting amongst the UK top 20 firms, but also to transform the wider business into a full scale business process outsourcer. 

First Multi-Disciplinary ABS Approved

After a long wait, the SRA has approved the first multi-disciplinary alternative business structure (ABS), with London property company Crabtree Property Management receiving a licence to establish a fixed-fee property litigation firm.

Crabtree, which was established in 1983, currently manages in excess of 17,000 properties across London and the south of England, including residential properties, retail units and offices.

James Naylor, who has been the Crabtree's in-house lawyer for two years, will become head of legal practice and the firm's sole legal adviser, which is presumably indicative of the fact that the focus will be on servicing litigation arising from the company’s managed portfolio, rather than soliciting instructions from other property owners or managers.  Running a property management portfolio involves a reasonably regular incidence of low-level litigation to deal with tenancy issues and dilapidation disputes etc, and therefore there is a clear logic for a company which has a significant number of properties under management to be able to handle the litigation arising from it, avoiding a degree of duplication of effort and cost.

Maclay Murray & Spens revert to traditional roots with Law at Work sale

Law At Work (LAW), the fixed fee employment law and health & safety consultancy owned by Scottish law firm Maclay Murray & Spens (MMS) has been sold in a management buy-out.

The MBO was led by Magnus Swanson, who was the chief executive of MMS until June 2011, and who retired from the firm in May of this year.  He is LAW's chairman, and one of the three shareholders (the others being Chief Executive Jane Wright and director of legal services Donald McKinnon).

The acquisition price has not been disclosed, but it is understood that the MBO was backed by HSBC.

LAW employs 30 staff, and has a turnover just in excess of £1.5m, and it is not expected that there will be any job losses following the MBO.

LAW was one of the early trailblazers in the field of fixed fee employment law services for employers, having been established in 2001.  Although the concept of offering an all-inclusive fixed fee service at a price guaranteed for three years is now not so revolutionary, at the time it was a real departure for a law firm which had traditionally charged on a time spent basis.  However, it appears that MMS may be returning to its more traditional roots, as it is reported as saying that the sale of the business follows a comprehensive strategic review, following which is was decided to withdraw from commodity-based services.  MMS also sold its corporate advisory arm Regulatory Solutions to the IMS Group as a consequence of the strategic review.

Company formation leader Jordans to enter legal market

The UK’s leading company formation agent, Jordans Limited, has applied to convert to an alternative business structure (ABS) in a bid to “move up the food chain”. 

The company, which currently offers a range of services including company formation, company secretarial, accounting and company searches, now wishes to provide legal services to existing client companies and also to win outsourced work from City law firms.  It perceives these as being higher up the value chain than the relatively commoditised areas in which it currently operates, where costs have been relentlessly driven down through competition.

As a company competing effectively in an efficiency driven market, Jordans should be well placed to handle those parts of the law which are capable of benefiting from process discipline and technology, and it has the added benefit of an existing huge client list to whom the services can be marketed. 

However, it will need to balance carefully the desire to offer more valuable legal services with the need to avoid biting the hand that feeds it – much of Jordans’ current work is believed to come from referrals from City firms, and they will not wish to cut themselves off from this lucrative source of work.  So for the time being at least, it seems they are content to stick to relatively “plain vanilla” areas of non-contentious company and commercial legal work such as terms of business, share schemes, due diligence, debt collection and, potentially, intellectual property.  It is keen to make it clear that it is not planning to become heavily involved in transactional work.  The company is quoted as aiming to target companies with a turnover of between £5m and £500m. 

The Jordans group is 150 years old and its business is structured as three separate entities. Jordans Limited (the entity making the ABS application) is the corporate services arm with bases in Bristol, Edinburgh and London.   Jordan Publishing, the second arm of the business, publishes legal information, while the third, Jordans International, provides corporate services to international clients and has bases in a number of offshore jurisdictions.

The firm is currently recruiting for a leader for the ABS business and has 5 paralegals on the payroll thus far – hardly a market-shaking number, but a start.

The interesting issue will be whether UK law firms do turn increasingly to outsourcing work to third parties such as Jordans, or whether in fact they take the opportunity to start moving into the space currently occupied by Jordans.  I am aware of at least a handful of law firms who are considering the establishment of ancillary business in the fiduciary and BPO spheres, in moves which follow what many of the offshore law firms successfully did many years ago.

The SRA is currently reviewing the Bristol-headquartered company’s application for a licence.  Jordan’s hope the approval and launch will come by early next year, although that may be optimistic considering the length of the current backlog at the SRA.

Measuring Success in Law Firm Mergers

There seems to be no decrease in law firm enthusiasm for mergers, despite continuing turbulent times.  According to Hildebrandt Institute’s MergerWatch, law firm mergers jumped by 67 percent in 2011, and are expected to rise again in 2012.  Certainly activity in the first half of the year seems to point to another busy year.

However, it has always been difficult to get any hard evidence of how successful merger strategies are in practice.  My own informal study of publicly available information is that whilst mergers are often successful in assisting with the achievement of an over-arching strategic objective (such as the need to gain access to new geographical locations, or new service lines, or to raise the profile of a brand), it is much more difficult to demonstrate success on the bottom line and many firms seem to have a period of a few years where profits remain in the doldrums for a few years post-merger.  In many ways this is not entirely surprising, as it is in the nature of businesses which essentially sell professional time that scale does not necessarily equal greater profit.   If you accept David Maister’s well known formula, which says profit per partner (PEP) is a function of utilization X charge-out rate X leverage X margin, then none of these are likely to be significantly impacted by a merger.  Few mergers fundamentally change the ratio of partners to fee earners, or enable big hikes in charge-out rates.  It is true to say that there are a degree of cost synergy savings in some mergers with the elimination of back-office duplication, but these tend to be relatively modest and are often offset in the early years by the additional costs of the integration exercise itself.  The best mergers do lead to an increase in combined revenues, but turning it into an increase in PEP is a much greater challenge.

A good example of this is likely to be Clyde & Co¸ which has achieved the phenomenal achievement of a 36% hike in revenue (to £287 million) so far this year, following its merger with Barlow Lyde & Gilbert in November 2011.  This makes it currently the fastest revenue growing firm in the UK top 50, and even when the revenue contribution from Barlows is stripped out, like-for-like revenues at Clydes grew 17% - impressive growth by any standards.  It appears that a lot of the growth has come from the firm’s non-UK operations, which seems to suggest that the course of internationalisation that they have embarked upon is resulting in a rapidly increasing market share - so clearly Clydes’ strategy is working in that regard. 

However, there is likely to be a lull before that translates into increased partner earnings, if indeed it does so. Profits have not yet been announced by Clydes but whilst absolute profit is expected to have increased at the group, PEP is widely expected to have declined over the same period, perhaps by 10%.  This reflects the relatively high costs of opening new offices, and having to place a relatively high proportion of senior people there in advance of the work flows.  Despite this, Clydes certainly seem to be happy to stick with the expansionist plan - earlier this week they announced new office openings set to happen in Sydney and Perth, which is an indicator that they are happy to bear a short term dip in personal earnings to achieve a longer term strategic objective.

The prospects of Clydes recovering any temporary loss of PEP seem to me to be very good in the medium term, as newer international offices gain scale and the proportionate costs of supporting them and the integration effort reduces.  However, it would in my view be misguided to think that the PEP will ever increase at anything like the same rate as the revenue line, unless there is a fundamental rethink of the basic principles of running a law firm, so that Maister’s formula is truly challenged (perhaps for example, by following the bold steps of Riverview Law, and breaking the direct linkage between hours worked and the bill levied).

So by what measure should we measure the success of a law firm merger?  That is a long and complex question. There are, as I said, many things which can indeed by achieved by a merger – brand awareness, geographical footprint, sector expertise, and sometimes even just the protection of a market share which is likely to be eroded if a firm isn’t seem to be moving forwards and developing.  However, if the number one strategic aim of a merger is an increase in PEP, then that is quite a tough nut to crack.