Legal review 2015: The highs and lows of a year of change

IT has been a busy year in the North West legal market with new international entrants, the Big Four accountants stepping up their moves in the sector and also further consolidation.

The region’s legal sector is rapidly evolving and is a fiercely competitive marketplace. Yet Manchester, the commercial core is continuing to attract new firms and many claim it has been a bumper year in terms of fee income and profits.

For Australian personal injury firm, Slater and Gordon, though 2015 has been something of an ‘annus horribilis’ after seeing around 90% wiped of it stock market value.

The year started off well for the arch-consolidator which is Manchester’s largest firm in terms of staff numbers, with the opening of its new offices on Mosley Street. It was a move that brought together Russell Jones & Walker, Fentons and Pannone staff under one roof.

In March, the group announced a deal to acquire the Liverpool-based professional services division from troubled insurance outsourcing and technology company, Quindell for £637m.

At the time, Andrew Grech, managing director of Slater and Gordon, hailed the deal as a “transformational opportunity”.

However, the firm’s fortunes soon began to reverse and its share price tumble after a series of revelations. In June, Slater and Gordon revealed errors in its financial reporting and said Australian regulators would launch an investigation.

Then, after months of investor and analysts concerns over the Quindell acquisition and news of a Financial Conduct Authority  investigation, the Serious Fraud Office revealed it had launched a criminal investigation into  Quindell’s accounting practices after it said profits had been overstated.

At the time, Slater and Gordon said ‘it was important to separate issues associated with Quindell’s historical statutory accounts from the law firm’s assessment of the professional services division’s value and likely future performance’. However, Slater and Gordon’s share price still fell steeply.

In November, there was yet more bad news for firm’s beleaguered investors when Chancellor George Osborne announced proposals to change the legal rights of people injured in car accidents. That announcement sent the shares tumbling 75 % at one stage.

Once again Slater and Gordon moved to reassure the market, saying the UK proposals wouldn’t have any impact on the SGL business in Australia, nor have a material effect on the SGL business in the UK.
Its shares briefly rallied. However, it went on to serve up more bad news when it told the Australian stock market that it would not hit earnings targets for the current financial year due to its UK business performing below expectations.

The market capitalisation of the business is now around AUS $331m, down from AUS $2.8bn in April around the time of the Quindell deal –  the acquisition certainly was ‘transformational’ but perhaps not in the way Grech had hoped.

Elsewhere, business advisers EY followed rivals KPMG and PwC with a major move into the regional corporate legal services market.

The firm lured former Addleshaw Goddard national managing partner Paul Devitt and fellow corporate partner Richard Thomas, who were promptly invited to spend 12 months cutting the grass and pruning the roses in their respective gardens by their former partners.

The move was seen as a real statement of intent in the professional services community, and continues an increasing trend in the market, which was kick started regionally by KPMG with its hire of Nick Roome from DLA Piper and latterly with PwC which appointed former Addleshaw Goddard partner Neal Shepherd in October 2014.

The hire of Devitt and Thomas followed a number of recent appointments to EY’s UK legal services business. Since acquiring an ABS licence last December, the team has grown to more than 25 people and is set to expand further over the next two years.

Nabarro, which opened an office in Manchester in 2014, continued to expand with a number of high profile hires including Howard Gill from Pinsent Masons who became its first corporate partner.

The arrival of international firms to the city also continued. In January one of the world’s biggest law firms announced it was opening a back office function in Manchester, after being lured by the city region’s strong talent pool.

Latham & Watkins said the base was an expansion of the firm’s existing global support services, many of which are currently provided from Los Angeles.

In May, Freshfields Bruckhaus Deringer confirmed its arrival in Manchester after choosing the city as a low-cost alternative to London.

Meanwhile,  legal history was made when Gateley became the first UK law firm to float on the London Stock Exchange. In June, the company raised £30m as its shares were placed at 95p with investors on the junior Aim market, giving it a £100m valuation. Many now predict that Irwin Mitchell and DWF will soon follow Gateley’s lead.

It was a good year for the city’s home grown firms. JMW has hailed “exceptional growth” after revealing staff numbers have topped 300 for the first time ever. The firm said fee income to the end of November was £11.8m compared to £9.9m this time last year and it is on course to break through £20m in the full year.

Despite losing Thomas and Devitt, 2015 was a good year for Addleshaw Goddard, which is now more profitable under the leadership of Mancunian managing partner John Joyce. Its strength in the corporate market was underlined as its team was crowned Law Firm of the Year at The Rainmaker Awards 2015 after a vote from their peers in the corporate finance community.

Consolidation and internationalisation continued too. Darbys, a firm based in Hale, south Manchester was swallowed-up by Knights, while within weeks, DWF launched an office in Brussels and acquired a commercial practice in Germany.

There was a notable casualty too as Liverpool personal injury firm GT Law went into administration following the collapse of a long-running class action.

Slater and Gordon was not the only firm to be affected by the Chancellor’s blitz on whiplash claims, as Bolton-based Asons shelved the construction of a £5m headquarters building in the town and cited this as a contributory factor.

So what does 2016 hold for the region’s legal firms?

Paul Jonson, managing partner of Pannone Corporate said: “While there is much to be confident about, there remains some hard truths for law firms to face. Pressures on hourly rates continue.  The lessons of the recession will not be unlearned by clients. They know how to bargain and are more promiscuous in their use of lawyers. Clients expect genuine added value and that means a lot more than eshots or the occasional “free” seminar.

“There will continue to be great opportunities for entrepreneurial and tightly focussed commercial firms, run leanly and without layer upon layer of management, who can respond quickly and effectively to client demands. We are not finding it difficult to get in front of potential clients.”

Rob Elvin, managing partner, Squire Patton Boggs in Manchester added: “Changes to the legal sector in 2016 will have some impact on traditional law firms, although we predict this impact will be very small to begin with. The indication we have is that many clients, for example, prefer to have separate accountants and lawyers, rather than see everything under one roof. Good law firms will still be good law firms.”