finance

Brodies tops 2018 Insider Legal Leaders table



Despite Scotland, along with the rest of the UK, continuing to go through a time of uncertainty as Brexit edges closer, the legal sector appears to be going from strength to strength.

Many of Scotland’s commercial law firms have been reporting record revenues for a number of reasons, from some recovery of the Aberdeen economy to large property deals being done but also as a result of clients seeking advice on Brexit.

Brodies, Scotland’s largest independent law firm, recently reported its eighth consecutive year of revenue growth – up to £68.6 million in 2017/18 from £66.7 million the previous year.

Nick Scott, who succeeded Bill Drummond as managing partner at Brodies this year, says: “The Scottish market has shown itself to be particularly resilient in times of economic and constitutional change and this past year has been no different. Brexit will bring both challenges and new opportunities.”

According to Scott there has been a lot of work involved in restructuring businesses, supply chains, ensuring companies are compliant with any new regimes and adapting to a different trading environment.

“What one must never do is underestimate the entrepreneurial drive of the individuals, businesses and organisations who operate from, or invest in, Scotland. We take heart from their resilience,” he says.

Legal Leaders 2018 Top 10

Ranked by total staff plus partners

Numbers given are full time equivalent

Rank 2018 (2017) Firm

Total staff and partners (% change this year)

Staff

Fee-earners

Partners

Scottish HQ/Scottish Offices

1 (1) Brodies

620.2 (7.08%)

524.5

358.5

95.7

Edinburgh/5

2 (2) Pinsent Masons

544 (-1.27%)

476

326

68

Glasgow/3

3 (5) Burness Paull

476.7 (7.47%)

413.7

236.8

63

Edinburgh/3

4 (8) Aberdein Considine

434 (12.44%)

399

170

35

Aberdeen/19

5 (7) Thorntons

430.72 (10.77%)

381.8

136.05

48.94

Dundee/13

6 (4) CMS

420 (-7.08%)

358

278

62

Edinburgh/3

7 (3) Shepherd & Wedderburn

408.41 (-11.14%)

342.4

142.54

66

Edinburgh/3

8 (9) Harper MacLeod

350 (-4.37%)

285

195

65

Glasgow/5

9 (6) Dentons

331 (-22.30%)

288

194

43

Glasgow/3

10 (11) BTO Solicitors

308 (0.65%)

262

119

46

Glasgow/Edinburgh/2

Richard Masters, chair of Scotland and Northern Ireland at Pinsent Masons, which reported a six per cent growth in annual turnover to just under £450m, describes political uncertainty as its main challenge – in common with many other businesses. He says the possibility of another general election and a potential rerun of the independence referendum “would be a major distraction for UK plc”.

He adds: “Brexit has had a marked impact on the level of advisory services we are being asked to provide and our specialist Brexit Unit will certainly be busy providing scenario planning and strategic oversight around Brexit-related matters for some time to come.”

Chris Harte, chief executive at Morton Fraser, says: “The one thing clients expect from us is a point of view. Sitting on the fence doesn’t aid decision-making and businesses cannot simply stop to wait and see what happens after Brexit. We have focused on giving clear, confident advice on what Brexit will mean in a Scottish legal context, a context that is continually morphing.”

Stephen Gibb, chief executive of Shepherd & Wedderburn, says the firm established a dedicated Brexit advisory group following the EU referendum vote. He adds: “Our clients are getting on with the business at hand, as are we. In Scotland we are used to constitutional change, looking back to the establishment of the Scottish Parliament in 1999 and beyond, and while the outcome of Brexit negotiations is far from clear this has not put a break on activity.”

UK law firm Addleshaw Goddard, which acquired Scottish practice HBJ in June last year, recently posted record global revenues of £242 million, a 23 per cent rise on the previous year.

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Neil Kennedy, who replaced John Macmillan as managing partner at MacRoberts in May, says Brexit is having a varying impact on different sectors of its business.

According to Kennedy, there is a lot of worry in the construction sector about labour costs, access to labour markets and uncertainty about access to the European Structural Investment Fund which builds a lot of Scottish roads.

He also points to challenges for real estate, exacerbated by failures in the retail market. While banking has been stable and doing well, he says there is lack of detail on what will happen to UK financial services post-Brexit.

Dentons, which last year acquired Scottish law firm Maclay Murray & Spens, revealed double-digit increases in UK revenues and profits. It reported a 22 per cent increase in revenues to £203.1 million for the year to the end of April from operations across 14 cities in the UK and Middle East.

Kenneth Shand, senior partner with Dentons in Scotland, says: “The market generally has been pretty active despite uncertainties. Businesses have largely been getting on with it.

“We just posted our strongest ever set of financial results for year ended in April. There has been plenty of work around.”

And Tamar Tammes who recently became Burness Paull’s first female managing partner – as part of a “new generation of leadership” at the firm which also saw Peter Lawson become chairman – describes uncertainty as the new certainty. “Businesses get used to keeping going, doing deals, being more flexible and looking at diversification,” she says.

Anderson Strathern’s managing partner Murray McCall says the firm’s financial performance has been very strong and he predicts that revenue will be six to eight percent up on last year.

“Over two years ago we did experience a bit of a Brexit hit,” he says. “We were doing well up to the vote and then things fell off a cliff. We’ve recovered from that now. I think this will be one of our best years ever.”

McCall is seeing growth across the board, but particularly in commercial litigation for a number of reasons, including Brexit, distresses in the market – including the collapse of Carillion – a growth in regulation, such as GDPR and more of a focus on governance among clients.

He says: “I can track the growth in regulation back to the Brexit vote. After the vote there was a quiet summer when a lot of people took stock and some property companies downed tools. By the autumn people started to just get on with business.

“But people were nervous and worried about the state of the economy and the potential impact of Brexit. For that reason, we started to see litigation rise. Then we had the general election and having a government without a proper majority has also created nervousness about the economy.

“If you have nervousness you’re going to see a ramp up in litigation and disputes and you see an increase in restructuring.”

He says the firm also has a lot of clients heavily reliant on European labour so issues are starting to emerge around immigration and recruitment and the education sector which relies on overseas students and high-quality European lecturers.

Top 10 Dealmakers

Ranked by number of transactions reported to Insider for 2017 as of September 2018

Rank Firm

Number of deals reported

Total Value

2017

2016

2017

2016

1

Burness Paull

301

276

>£43.24bn >£9.48bn

2

Brodies

147

123

>£7.17bn >£2.77bn

3

Shepherd & Wedderburn

142

73

>£16.01bn >£5.57bn

4

Pinsent Masons

124

108

>£5.52bn >£8.4bn

5

CMS

115

166

>£7.1bn >£13.23bn

6

Harper Macleod

99

114

>£487.15m >£1.1bn

7

Addleshaw Goddard

45

51

>£366.24m >£221.56m

8

Dentons

38

100

>£18.23bn >£1.68bn

9

Macdonald Henderson

37

22

>£37.38m >£0.39m

10

DLA Piper (Scotland)

36

50

>£3.66bn >£12.67bn

Allan Wernham, managing director for Scotland and partner at CMS, says: “Because we’re part of a European law firm with an office in just about every European state we are pretty well placed to advise on the consequences of Brexit and that has brought about some work for us.”

And Jack Gardiner, a partner with Turcan Connell, which specialises in private client business and recently moved its Glasgow office as it double its workforce in the city, says there is cause for optimism with strong deal flow set to continue.

One impact of Brexit that he has experienced is increased interest from the US market in acquiring Scottish businesses, for example in technology or manufacturing, following the weakening of sterling after the Brexit vote.

Andrew Chalmers, managing partners at Davidson Chalmers, says while the legal market seems buoyant across all sectors with foreign investment remaining high, it might be even busier were it not for the “Brexit cloud” and he sounds a note of caution.

“To date the Brexit effect has only been positive on fees and workflows but that could change very suddenly if some of the concerns around Brexit are realised, such as a hard exit and the possibility of a change of government,” he warns.

Malcolm McPherson, senior partner for Addleshaw Goddard in Scotland, says: “Regarding Brexit, on the ground we’re not seeing the same level of ‘wait and see’ attitude as we perhaps did 12 months ago. It’s business as usual for most organisations – keen to move on and to pursue growth.”

Looking beyond Brexit, the general mood is one of optimism for Scottish law firms, including those that have undergone major changes in recent times, for example as a result of merger and acquisition or changes to top personnel.

Dentons’ Shand says: “We’re now part of the biggest law firm in the world and we’re the only significant player in Scotland which is a truly global firm, although there are firms with international offices. We have 163 locations in 70 jurisdictions, which is much wider coverage than any other firm. We’ve seen quite a lot of opportunities arising from that which means we can better service our Scottish and other UK clients.”

He says the firm has gained places on a number of panels because it now has UK coverage and it has won new business.

Burness Paull’s new managing partner Tammes says her firm has had an exceptionally strong deals year. It has done almost £43 billion of deals, with private equity particularly active. She also says there are signs that Aberdeen, which is an important part of Burness Paull’s business, is improving.

She adds: “The pipeline looks very strong. We’re having a much busier high summer time than usual. There’s a lot activity and I don’t think that’s unique to us.”

Masters at Pinsent Masons says it has been involved in big ticket deals such as Barclay Bank’s acquisition of Buchanan Wharf in Glasgow where it will create 2500 jobs on a custom-built campus, Ithaca Energy’s $1.6 billion acquisition by Delek Group and Shell’s $3.8 billion sale of North Sea assets to Chrysaor.

Looking at the wider Scottish legal scene, Masters believes there could be further consolidation of legal firms amongst the middle-tier, but the market may have seen the last of the larger cross-border deals for some time.

McCall at Anderson Strathern says: ‘’We’re fully intent on remaining an independent, Scottish law firm. We want to be in charge of our own destiny.”

Martin Darroch, chief executive of Harper Macleod LLP, says his firm has had a 25 per cent growth in turnover since 2013, a ratio of 2.5 times more than the industry average. In August it marked its 30th year in business by announcing record profitability and its seventh consecutive year of profit growth.

The Glasgow-based firm notched up profits of more than £10 million for the first time with a 4.2 per cent rise to £10.2 million on turnover of £26.5 million.

But his view is that the overall Scottish market will remain flat in terms of value. Therefore, its entire focus is on talent retention, brand management and efficiency as a business to sustain a platform that will attract new talent and new clients.

He adds: “We have seen a year which has brought two new brands fully into the Scottish market in the form of Dentons and Addleshaw Goddard, taking over Maclay, Murray & Spens and HBJ respectively.

“It will be interesting to see whether those brands represent either a challenge to the market or an opportunity for the already established brands in Scotland that will no doubt seek to target the legacy business’s talent and clients.”

Fee League 2018 Top 10: Top Earners

Ranked by fee income

Rank 2018 Firm

Fee Income Latest/Prev

Income per Fee Earner

1 Pinsent Masons

£72m/£66m*

£220,859

2 Brodies

£68.58m/£66.7m

£191,297

3 Burness Paull

£57.6m/£53.8m

£243,243

4 Shepherd & Wedderburn

>£53.5m/£50m

£375,333

5 Thorntons**

£27.51m/£23.85m

£202,205

6 Harper MacLeod

£26.5m/£26.6m

£135,897

7 Addleshaw Goddard

£20-25m/£20-25m

£169,173

8 Aberdein Considine

£22m/£21.1m

£129,412

9 Anderson Strathern

£21.8m/£21.5m

£114,737

10 Morton Fraser

£21.7m/£19.9m

£134,783

*Insider Estimate

He also says the industry will face potential change and opportunity following the legal services review, which is likely to open up the market further to new entrants and external ownership.

Morton Fraser’s Harte says: “The Scottish legal sector has been in a state of transition for some time. We see the larger international players coming in to the market as a sign of confidence, and one that the sector needs to embrace.’’

Gibb of Shepherd & Wedderburn says: “We recently celebrated our 250th year with record results. Our revenue was up six per cent to £53.5 million and pre-tax profits rose 10 per cent to £22 million in 2017/18, and we have got off to a promising start in our current financial year.

“Despite well reported economic and political uncertainty, in the UK and overseas, our clients remain active and our lawyers continue to be very busy.”

MacRoberts’ Kennedy says its strategic priorities are to increase its turnover, consolidate its cash position, grow its Dundee operation and look at opportunities for bolt-on acquisitions, possibly in the area of private client business.

He is also looking to take advantage of smarter IT, including in the area of artificial intelligence (AI) and work on gender diversity and inclusion.

Wernham says the focus for CMS in Scotland is to bring more balance to what it is facing in the local market. Since the merger with D&W and CMS in 2014 he says the firm has concentrated on integrating the Scottish business into the rest of CMS. “We’re looking to increase our profile in terms of work won and done in locally in Scotland,” he says. This includes Aberdeen where opportunities are being created on the back of the oil price going up.

Against a backdrop of uncertainty, largely around the dawning of Brexit next year, Scottish law firms have generally been growing over the last 12 months. Most are predicting business to be up in the coming year, but some have warned about the unknown consequences of the UK leaving the European Union.



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