Blood in the water

When Lee Crowder took the decision to move from its Edgbaston base back to the city centre in 1997, the managing partners of Birmingham's mid-tier firms had a few words of greeting for its then managing partner Joel Kordon: "You're in the shark pool now," he was warned. "And we're going to eat you."

In November 2002 Kordon announced he was to quit the firm, along with four other Lee Crowder property and construction lawyers, for new player Shoosmiths, now making its first foray into Birmingham's notoriously competitive mid-tier. The move came in the wake of a tough couple of years for Lee Crowder. The firm had established its reputation as a leading commercial practice largely through its longstanding relationship with the Birmingham office of 3i, which in 1996 had brought in more than a quarter of the firm's total fee income. Since the firm's exit from 3i's legal panel in 2000, other areas – including property – had taken on an ever-greater importance. The loss of Kordon, Lee Crowder's best-known property lawyer, was significant.

So if the market is so bad that even Birmingham's longest-established law firm is feeling the heat, what would possess any firm to launch in the city now? The answer, unsurprisingly, lies in the work. While Birmingham's top-tier work has long been dominated by the same five firms – Pinsent Curtis Biddle, Eversheds, Hammond Suddards Edge (now Hammonds), DLA and Wragge & Co – the city has also proved a healthy market for one of the most competitive mid-tiers in Britain. Firms such as Lee Crowder, Shakespeares, Gately Wareing and Martineau Johnson have all picked up a healthy stream of mid-market corporate work from Birmingham's owner-managed businesses, smaller plcs and venture capital houses.

Lawyer numbers may be lower and turnover smaller than at the big five, but competition in this tier is equally as harsh. The economic downturn has shrunk the feeding ground for Birmingham law firms and the big five have become increasingly flexible about the work they accept, bringing them into direct competition with the smaller firms.

"They [the mid-tier firms] cannot compete at the bottom of the market because of their cost base and they cannot compete at the top end either," says Chris Rawstron, managing partner of DLA's Birmingham office.

"The bigger firms are taking a bigger slice of the work available, the smaller firms are concentrating on niches and those in the middle ground are not anything to anybody."

Meanwhile, competition for mid-tier work is growing ever tighter among the smaller firms themselves: Bevan Ashford and Heatons both moved into the city in 2001, with Northampton-based Shoosmiths following suit in 2002.

And Lee Crowder was far from the only firm to suffer from an excess of competition – things were going little better at Irwin Mitchell. Insolvency partners Stephen George and Devinder Singh announced in September they were planning to quit the firm for Hammonds. A few days later the firm announced it was to close its insolvency, property and corporate finance groups in Birmingham on profitability grounds. Two other partners, property specialist John Flathers and corporate finance partner David Williams, subsequently relocated to the firm's Leeds office, while construction partner Alasdair Kirkpatrick was hired by Freethcartwright.

Shoosmiths is evidently unconcerned by the uncertainties of the mid-tier and, despite the doom and gloom among lawyers, from a client's perspective, the increase in competition can only be positive. Lee Crowder for one is fighting back hard against the tough market with the recruitment of former Browne Jacobson partner Duncan Murray as its new head of banking and Gateley Wareing has also made a strong start to the new year with the recruitment of Paul Cliff and Katie Silvester from Hammonds. But with competition for work ever greater and competition for lawyers moving in the same direction, any firm daring to dip its toe into Birmingham's murky waters in the next 12 months must expect some flesh wounds at least.

Anytime, anyplace, anywhere

Birmingham set 5 Fountain Court spent the early part of 2002 working to realise a concept that been under discussion at the set for a number of years: its transformation into Britain's first national chambers. The first step, the launch of the set's London operation, was realised in July this year with the opening of new offices at 199 Strand. Six months on, the set has eight tenants and one associate tenant – 3 Hare Court Chancery and commercial silk Richard Jones QC – in the capital, covering commercial, civil, and white-collar crime work.

The reaction of the London sets to this development has been, unsurprisingly, derisive. Despite this, Tony McDaid, No5′s practice director, says the set has had little trouble recruiting from the London market, taking tenants from Bracton Chambers, Tanfield Chambers and 4 Paper Buildings, and expecting at least two more within the next two months. "We have shown that we can build a London and national client base effectively from Birmingham," says McDaid.

And the set's ambitions do not end in London. While the establishment of a London office has always been the first strategic target for the set, it has never made a secret of its plans to re-establish itself as a national set, operating from a range of bases around the British Isles. "Within the next 18 months, we expect to have a presence in at least one other city – Cardiff, Bristol, or Leeds – depending on the practice group we are looking to build," McDaid adds. "We are already starting to establish ourselves as a national set."

While national expansion is still top of the agenda, the set is also concentrating on building up its international links through an alliance with Spanish firm De Cotta McKenna and Santafe. In its home market, No 5 is also looking to expansion, with the recruitment of seven new tenants from rival set 3 Fountain Court, and expects an increase in turnover to £16.5m in the coming year.

"We have a lot of ambitious barristers here, and we are not naive enough to think that, running solely from Birmingham, we can achieve the kind of success we will need to satisfy all 130 people," McDaid says.

But before the set focuses too firmly on the rest of the nation, how successful has No 5 been in consolidating its position in its home market?

While most Birmingham litigators are more than happy to use the local Bar for lower-end, locally-based work, most already have established relationships with the London Bar and will not alter those without good reason.

Not so grim down south

No 5 was not the only Birmingham institution to be making a move on the capital this year, but for Wragge & Co, the launch of dedicated property and private equity teams in London earlier this year meant more than just a move into a new market. It also signalled the end of a policy Wragges' management had insisted they were committed to right up to the moment to move was announced.

It had been apparent since the emergence of Wragge's merger talks with London firm Tarlo Lyons in July 2001 that, despite the firm's insistence that it saw London as a market only for niche practice areas, it could ill ignore the necessity for a full-service presence in the capital. Tarlo Lyons, although primarily known for IT, was hardly a niche player, gleaning as it did some 60% of its fee income from commercial, property, dispute resolution and entertainment work. Wragges obviously meant business with its new practices – Herbert Smith's Gerald Bland came on board to launch the firm's new London property practice, while Wragges' own private equity stars Maurice Dwyer and Andy Stylianou were relocated to the capital on a part-time basis.

Despite Wragges' official line that the moves were purely opportunistic, rumours of divisions over the firm's London strategy had circulated for years. An increasingly exasperated corporate department had been putting pressure on management to set up in the capital, with the relocation of corporate partners from Birmingham to London under discussion as far back as 1999.

But with Wragges' strategy changes coming "at the pace of a snail" (in the words of one partner) it took three more years for the move to be achieved. By this time, the cracks in the strategy were starting to show. Profitability slid 10% in 2002, while turnover – which had jumped by an unprecedented 40% between 2000 and 2001 – rose by just 2% the following year. Meanwhile the firm terminated its leases at two of its three Birmingham sites and moved all its lawyers into newly vacated space in its Colmore Row base, a move made possible by a 13% reduction in the firm's headcount – 40% of whom were fee earners.

So will it work? Maurice Dwyer says he is not assuming his clients in Birmingham will necessarily also use the firm in London – 3i, for example, has longstanding ties with Macfarlanes. "We will do that work if it comes up, but we are not making the assumption that our Birmingham clients will use us in London," he says. "I know how long those relationships take to build up, and how difficult it is to break into."

In the Birmingham market, rivals say the move is more likely to be effective in the long term rather than the short term. "In the fullness of time they will do all right [in private equity], but the market is against them now," says one corporate partner at a rival firm. "If they had done this two years ago in a buoyant market, they would have found it easier."

Meanwhile the Wragge & Co public relations machine is still referring to its operations in London as "niches". With IP, private equity and property already going strong, and with other lawyers also handling IT and telecoms work, it may wish to question how many 'niches' can exist under one roof before a full service has officially been achieved.

Two steps forward…

After a rocky few years following its merger with Midlands firm Edge Ellison, Hammond Suddards Edge entered 2002 looking positive. The firm picked up a number of significant new clients in the early part of the year, including German pharmaceuticals giant Bayer, Jewson, Enterprise Inns and Western Wines, while Interflora named Hammonds as its chief legal adviser in March. All but Interflora were former clients of two of Hammonds' most significant hires in Birmingham: David Beswick, the highly-respected former head of employment at Eversheds Birmingham, and Amanda Allen, formerly a senior member of Pinsent Curtis Biddle's private equity team.

But if Hammonds was hoping to shake off its image as the firm the remainder of the Birmingham big five most delight in knocking, the New Year must have brought with it some cause for frustration as Paul Cliff, the firm's former head of corporate, announced he was to leave for mid-tier firm Gateley Wareing, along with fellow corporate partner Katie Silvester.

Sources at Hammonds admit the move took them by surprise. Cliff was a well-respected member of the corporate department and served as head of department in the period following Edge Ellison's merger with Hammonds in 2001. Former Edge Ellison head of corporate David Hull, who had spent much of his time post-merger contact-building in the US, reclaimed the position at the end of 2001.

Despite the ubiquity of the big five, Hull and Silvester's decision was also further proof that Birmingham's mid-tier are a force to be reckoned with. Gateley Wareing's five-partner corporate team – which includes the highly-respected Paul Hayward and senior partner Michael Ward – had already established a strong reputation for owner-managed business and smaller plc work and acted in 2001 for the management buy-out team on the £100m acquisition of the Vickers turbine components division.

The recruitment of Beswick and Allen and a string of notable deals and client wins may have succeeded in silencing the firm's critics, but the loss of Cliff and Silvester has once again shunted these achievements out of the limelight.

Having taken such significant steps forward this year, Hammonds must now be hoping these small steps back will be quickly forgotten.