News - Midlands
Midfield Players
Players in sectors from accountancy to retail increasingly have to choose whether to be big and beautiful or small and perfectly formed. But not so in legal circles it appears these days.
Greg Lowson, managing partner at Pinsent Masons in Birmingham, says: "What's really surprised us about the Midlands is that, in a relatively short space of time, there has been a whole new tier of companies that have come on in leaps and bounds. It means that the middle tier has quickly become a very crowded and competitive market, but so far there appears to be enough work to sustain them and they appear to be thriving."
Mike Hibbs, senior partner at Birmingham's Shakespeares, says: "There's a growing realisation among clients that Midlands mid-market firms are a viable and effective alternative. Many of the really large firms are pulling away from smaller clients, actively deterring them. And as the large players become more expensive it's giving mid-tier Midlands firms like us the chance to move in."
So what's driving this thriving middle market? According to pundits it's a mixture of national clients looking inwards, regional firms looking outwards, and major players looking upwards.
Inwards, in effect, means getting work from London. Many Midlands firms note that corporate clients increasingly see the law as a commodity and one in which, so long as quality can be maintained, price rather than geography is the deciding factor.
Quentin Poole, senior partner at Wragge & Co, Birmingham's biggest law firm, says: "We're almost becoming a manufacturing economy that produces legal services in the Midlands and exports them to the South East. A huge amount of our work, and that of other law firms, is coming in from London. Second-tier firms in London are having a very hard time because of price pressure and it's partly a result of all the work that is being shipped out to the regions.
"The growth in this market has largely been brought about by the spread of the internet. Increasingly, clients think big and do not buy local. Bar the occasional meeting, the legal work can now be done anywhere."
Philippa Dempster, business services partner at Freeth Cartwright, which has offices across the East Midlands, agrees: "The market that has really started to pick up is work from London. Clients realise they don't have to pay the prices that legal firms in the centre of the City charge. In the past few weeks alone we've had inquiries from four major clients, which are looking to move a large proportion of their work out of London: they're looking for somewhere that can provide the same quality but at far lower cost," she says.
This move is not limited to solicitors. Barristers too have noticed that there is an increasing tendency for work to move out of the capital, largely on the basis of price. This could soon accelerate if a campaign by regional barristers and Birmingham Forward to have a High Court judge sitting permanently in Birmingham succeeds.
Tony McDaid, practice director of Birmingham's No5 Chambers, says there was growing resentment among some regionally based commercial clients about having to jump on the train to London each time they had to appear in a High Court case. He says: "There's a realisation among clients that you don't have to go to London for expertise. I met a delegation of business leaders from Shanghai a couple of weeks ago, and they were amazed that we could offer the same service using 12 QCs here, at half the cost of barristers in London."
However, it is not only the London market that is helping sustain growth. Most law firms point out that much of their growth is coming from outside the capital, both from across the UK and internationally. Sara Woofenden, lead partner at Bevan Brittan's Birmingham office, argues that having a strong base in the Midlands is not evidence of a parochial outlook - rather it is one of national intent.
"Any firm that is trying to develop a national profile has to be seen to be in the country's second city. There are local advantages in that the big firms in the Midlands cannot have all the work that's available at the rates they charge, and that leaves firms like us with real opportunities. The local market is still far from saturated. However, like most firms, the vast majority of our clients are from outside of Birmingham. If any law firm is serious about growth it has to look beyond its geographic boundaries," she says.
Indeed, the desire to be in Birmingham has led to other middle tier firms like Cobbetts of Manchester and Leicester's Harvey Ingram - both keen to be seen on a bigger stage - set up in the city in the recent past. Cobbetts' senior partner Stephen Benson says the move into Birmingham, by acquiring Lee Crowder, gave it not only a geographical spread and a new market where it saw opportunities but, along with another acquisition in Leeds, propelled it well into the top 50.
He says: "Four years ago we were ranked 93rd in the UK, and now were 37th. That's because we decided we needed to expand geographically. However, we'd seen a lot of firms set up office in London and then had real problems developing them."
Harvey Ingram's managing partner Chris Finlay says: "We'll concentrate on extending our share of the market, while continuing to develop our presence and profile in the Midlands region as a whole through our Birmingham office, which has over the last 12 months helped to give us a much greater regional presence."
The most dramatic change in the Midlands market, according to most observers, has been driven by the strategies of the bigger players to concentrate on the most profitable sectors.
Nearly all of the larger law firms are letting go of non-core clients and, for them, low margin specialisms fall away. This work has tended to go to law firms in the next tier down. And although the big boys can't make money out it, mid-tier firms have found they certainly can.
McDaid says: "It's quite clear that a number of law firms are pulling away from certain specialisms, particularly publicly-funded areas like family and legal aid. Many would like to do them but it's simply not cost effective."
From his perspective as a member of one of a top 20 law firm, Pinsent Masons, Lowson says: "Gone are the days when people walked off the street and got the bigger firms to do their conveyancing and probate. It's not where we're at, but it has meant that a whole new tier of firms has risen up to take that work on."
Wragge's Poole adds: "As firms move upwards it's not really in their interests to hang on to smaller clients. Not only did other firms get the stuff we really didn't want to deal with, but they managed to break into other markets as well. They saw a gap and went for it."
The most dramatic example of this switch of activities from one rank to another took place in December, when Wragge's 15-strong private client department decamped en masse to Mills & Reeves under an amicable agreement. Mills & Reeves' Guy Hinchley says: "The process started in the 1980s, when golden circle firms decided to concentrate on big clients, so sectors like legal aid and private clients didn't make sense. That thinking has carried over to big Midlands firms. Private clients weren't part of their strategic plan - it was 2 per cent of Wragge's income, but it's 20 per cent of ours.
"We saw this as a huge opportunity. Private clients is a developing and lucrative sector. It's a vibrant economy and that means there are a lot of very wealthy people who need advice on issues like tax and investments, and - let's be blunt - statistically 40 per cent will get divorced at some time and really need our services."
Similarly Stephen Benson, senior partner at Cobbetts, says: "Although some of the bigger players may be pulling away we're committed to private clients - it's an actively growing sector. A lot of the Midlands economy is made up of owner-managed businesses and if you're supplying legal services to the company you're likely to supply them to the owner as well."
However, almost all law firms above the size of a high street law firm recognise the need to focus their energies: they cannot offer everything to every potential client across the country.
What has become notable, particularly in the West Midlands, has been a tendency for firms to define their offerings. Rather than being specialists in certain sectors of the law to all-comers, firms are increasingly promoting themselves as full-service offerings to carefully defined markets.
For example, Birmingham's Martineau Johnson has made great play of the fact that it wants to grow in four key sectors: education, utilities, private clients and banking; Bevan Brittan believes the future is in health and Private Finance Initiatives (PFI), while Cobbetts is actively pursing the social housing sector.
Shakespeares' Hibbs says: "We're no longer offering legal specialisms to all comers. Instead, the trend is to offer complete services to specific markets. Clients want solutions to their problems. They don't want to go around shopping for an expert for that branch of the law, and a solicitor for another."
Perhaps one of the best examples of this selective full-service house approach was the merger of Pinsents with construction experts Masons in December.
The logic of the deal eluded many within the industry but, says Lowson, the deal gave Pinsents access to its new partner's sector strengths in construction, IT and outsourcing, while giving Masons the specialisms it really needed to expand within those sectors.
"Although Masons were seen as the experts in their fields they simply were not accessing corporate work from those clients because they lacked expertise in areas like tax and pensions. We get access to markets, they get access to expertise," says Lowson.
However, there is a different dynamic taking place in the East Midlands. Although larger players are following their West Midlands peers in building national specialisms, the commitment to remaining full service and retaining smaller clients remains very strong.
That commitment is driven by a number of factors: the East Midlands has a smaller corporate market and many of the really large-scale work goes west or to London; most leading players are of roughly the same size; and the legal market is divvied up between Nottingham, Derby and Leicester, although Nottingham is increasingly starting to dominate.
Brian Smith, managing partner at Browne Jacobson, based in Nottingham, says: "The West Midlands is a bigger legal market, so you can afford to specialise, and operate in a niche area. But to be an effective law firm in the east you have to offer full service to major clients."
Russell Davies, partner at Derby-based Smith Partnership, adds that although East Midlands law firms are focusing on offering a complete range of "competitively priced legal services" to retain local clients, "generally there is a move towards firms that are able to offer a wide range of specialist services as opposed to high street practices, with clients expecting a certain level of sophistication from their legal advisers".
Duncan James, head of business services at Berryman Shacklock, concludes: "Competition remains tough in the East Midlands, mainly because most of the key players are of a similar size. There's also a tendency to remain full service, mainly because of the restricted size and make-up of the regional market: the real big £3250m corporate deals will go to Birmingham. So we're also happy to still do the conveyancing and probate, although our fee structures mean that clients will still be at the higher end of the market.
"But I'm not sure that all this is sustainable. There are too many mid-range firms in the Midlands market. I think that there will be a shake-down in the near future - we'll see someone big pulling out, a major merger or someone going under altogether"
Greg Lowson, managing partner at Pinsent Masons in Birmingham, says: "What's really surprised us about the Midlands is that, in a relatively short space of time, there has been a whole new tier of companies that have come on in leaps and bounds. It means that the middle tier has quickly become a very crowded and competitive market, but so far there appears to be enough work to sustain them and they appear to be thriving."
Mike Hibbs, senior partner at Birmingham's Shakespeares, says: "There's a growing realisation among clients that Midlands mid-market firms are a viable and effective alternative. Many of the really large firms are pulling away from smaller clients, actively deterring them. And as the large players become more expensive it's giving mid-tier Midlands firms like us the chance to move in."
So what's driving this thriving middle market? According to pundits it's a mixture of national clients looking inwards, regional firms looking outwards, and major players looking upwards.
Inwards, in effect, means getting work from London. Many Midlands firms note that corporate clients increasingly see the law as a commodity and one in which, so long as quality can be maintained, price rather than geography is the deciding factor.
Quentin Poole, senior partner at Wragge & Co, Birmingham's biggest law firm, says: "We're almost becoming a manufacturing economy that produces legal services in the Midlands and exports them to the South East. A huge amount of our work, and that of other law firms, is coming in from London. Second-tier firms in London are having a very hard time because of price pressure and it's partly a result of all the work that is being shipped out to the regions.
"The growth in this market has largely been brought about by the spread of the internet. Increasingly, clients think big and do not buy local. Bar the occasional meeting, the legal work can now be done anywhere."
Philippa Dempster, business services partner at Freeth Cartwright, which has offices across the East Midlands, agrees: "The market that has really started to pick up is work from London. Clients realise they don't have to pay the prices that legal firms in the centre of the City charge. In the past few weeks alone we've had inquiries from four major clients, which are looking to move a large proportion of their work out of London: they're looking for somewhere that can provide the same quality but at far lower cost," she says.
This move is not limited to solicitors. Barristers too have noticed that there is an increasing tendency for work to move out of the capital, largely on the basis of price. This could soon accelerate if a campaign by regional barristers and Birmingham Forward to have a High Court judge sitting permanently in Birmingham succeeds.
Tony McDaid, practice director of Birmingham's No5 Chambers, says there was growing resentment among some regionally based commercial clients about having to jump on the train to London each time they had to appear in a High Court case. He says: "There's a realisation among clients that you don't have to go to London for expertise. I met a delegation of business leaders from Shanghai a couple of weeks ago, and they were amazed that we could offer the same service using 12 QCs here, at half the cost of barristers in London."
However, it is not only the London market that is helping sustain growth. Most law firms point out that much of their growth is coming from outside the capital, both from across the UK and internationally. Sara Woofenden, lead partner at Bevan Brittan's Birmingham office, argues that having a strong base in the Midlands is not evidence of a parochial outlook - rather it is one of national intent.
"Any firm that is trying to develop a national profile has to be seen to be in the country's second city. There are local advantages in that the big firms in the Midlands cannot have all the work that's available at the rates they charge, and that leaves firms like us with real opportunities. The local market is still far from saturated. However, like most firms, the vast majority of our clients are from outside of Birmingham. If any law firm is serious about growth it has to look beyond its geographic boundaries," she says.
Indeed, the desire to be in Birmingham has led to other middle tier firms like Cobbetts of Manchester and Leicester's Harvey Ingram - both keen to be seen on a bigger stage - set up in the city in the recent past. Cobbetts' senior partner Stephen Benson says the move into Birmingham, by acquiring Lee Crowder, gave it not only a geographical spread and a new market where it saw opportunities but, along with another acquisition in Leeds, propelled it well into the top 50.
He says: "Four years ago we were ranked 93rd in the UK, and now were 37th. That's because we decided we needed to expand geographically. However, we'd seen a lot of firms set up office in London and then had real problems developing them."
Harvey Ingram's managing partner Chris Finlay says: "We'll concentrate on extending our share of the market, while continuing to develop our presence and profile in the Midlands region as a whole through our Birmingham office, which has over the last 12 months helped to give us a much greater regional presence."
The most dramatic change in the Midlands market, according to most observers, has been driven by the strategies of the bigger players to concentrate on the most profitable sectors.
Nearly all of the larger law firms are letting go of non-core clients and, for them, low margin specialisms fall away. This work has tended to go to law firms in the next tier down. And although the big boys can't make money out it, mid-tier firms have found they certainly can.
McDaid says: "It's quite clear that a number of law firms are pulling away from certain specialisms, particularly publicly-funded areas like family and legal aid. Many would like to do them but it's simply not cost effective."
From his perspective as a member of one of a top 20 law firm, Pinsent Masons, Lowson says: "Gone are the days when people walked off the street and got the bigger firms to do their conveyancing and probate. It's not where we're at, but it has meant that a whole new tier of firms has risen up to take that work on."
Wragge's Poole adds: "As firms move upwards it's not really in their interests to hang on to smaller clients. Not only did other firms get the stuff we really didn't want to deal with, but they managed to break into other markets as well. They saw a gap and went for it."
The most dramatic example of this switch of activities from one rank to another took place in December, when Wragge's 15-strong private client department decamped en masse to Mills & Reeves under an amicable agreement. Mills & Reeves' Guy Hinchley says: "The process started in the 1980s, when golden circle firms decided to concentrate on big clients, so sectors like legal aid and private clients didn't make sense. That thinking has carried over to big Midlands firms. Private clients weren't part of their strategic plan - it was 2 per cent of Wragge's income, but it's 20 per cent of ours.
"We saw this as a huge opportunity. Private clients is a developing and lucrative sector. It's a vibrant economy and that means there are a lot of very wealthy people who need advice on issues like tax and investments, and - let's be blunt - statistically 40 per cent will get divorced at some time and really need our services."
Similarly Stephen Benson, senior partner at Cobbetts, says: "Although some of the bigger players may be pulling away we're committed to private clients - it's an actively growing sector. A lot of the Midlands economy is made up of owner-managed businesses and if you're supplying legal services to the company you're likely to supply them to the owner as well."
However, almost all law firms above the size of a high street law firm recognise the need to focus their energies: they cannot offer everything to every potential client across the country.
What has become notable, particularly in the West Midlands, has been a tendency for firms to define their offerings. Rather than being specialists in certain sectors of the law to all-comers, firms are increasingly promoting themselves as full-service offerings to carefully defined markets.
For example, Birmingham's Martineau Johnson has made great play of the fact that it wants to grow in four key sectors: education, utilities, private clients and banking; Bevan Brittan believes the future is in health and Private Finance Initiatives (PFI), while Cobbetts is actively pursing the social housing sector.
Shakespeares' Hibbs says: "We're no longer offering legal specialisms to all comers. Instead, the trend is to offer complete services to specific markets. Clients want solutions to their problems. They don't want to go around shopping for an expert for that branch of the law, and a solicitor for another."
Perhaps one of the best examples of this selective full-service house approach was the merger of Pinsents with construction experts Masons in December.
The logic of the deal eluded many within the industry but, says Lowson, the deal gave Pinsents access to its new partner's sector strengths in construction, IT and outsourcing, while giving Masons the specialisms it really needed to expand within those sectors.
"Although Masons were seen as the experts in their fields they simply were not accessing corporate work from those clients because they lacked expertise in areas like tax and pensions. We get access to markets, they get access to expertise," says Lowson.
However, there is a different dynamic taking place in the East Midlands. Although larger players are following their West Midlands peers in building national specialisms, the commitment to remaining full service and retaining smaller clients remains very strong.
That commitment is driven by a number of factors: the East Midlands has a smaller corporate market and many of the really large-scale work goes west or to London; most leading players are of roughly the same size; and the legal market is divvied up between Nottingham, Derby and Leicester, although Nottingham is increasingly starting to dominate.
Brian Smith, managing partner at Browne Jacobson, based in Nottingham, says: "The West Midlands is a bigger legal market, so you can afford to specialise, and operate in a niche area. But to be an effective law firm in the east you have to offer full service to major clients."
Russell Davies, partner at Derby-based Smith Partnership, adds that although East Midlands law firms are focusing on offering a complete range of "competitively priced legal services" to retain local clients, "generally there is a move towards firms that are able to offer a wide range of specialist services as opposed to high street practices, with clients expecting a certain level of sophistication from their legal advisers".
Duncan James, head of business services at Berryman Shacklock, concludes: "Competition remains tough in the East Midlands, mainly because most of the key players are of a similar size. There's also a tendency to remain full service, mainly because of the restricted size and make-up of the regional market: the real big £3250m corporate deals will go to Birmingham. So we're also happy to still do the conveyancing and probate, although our fee structures mean that clients will still be at the higher end of the market.
"But I'm not sure that all this is sustainable. There are too many mid-range firms in the Midlands market. I think that there will be a shake-down in the near future - we'll see someone big pulling out, a major merger or someone going under altogether"