Comeback kings Pinsents promise revival is more than one-year blip
Pinsents' top brass is aiming to rebut critics of Masons tie-up; City push and new strategy to focus on finance and international
October 11, 2006 at 08:03 PM
8 minute read
From the moment Pinsents and Masons gave the green light to their surprise merger deal two years ago, critics have been queuing up to sling mud at the newly-forged national giant.
An uninspiring financial performance after its first six months of business did nothing to alleviate the situation. Even Pinsents' talk of lucrative crossover potential between a respected corporate practice and Masons' heavyweight portfolio of clients in construction and IT was betrayed by a conspicuous lack of evidence. Perhaps as worrying, morale suffered badly in the wake of the tie-up, with some previously steady hands showing a perceptible tremor.
Fast forward to this summer and Pinsents unveiled a 71% upturn in average partner profits to £400,000 and a healthy 14.2% rise in fee income to hit £172m.
The result made Pinsents the fastest-growing UK firm by profits during 2005-06 – even if the profits rise was partly the result of a number of equity partner moves – and marked a genuine upturn after the disappointments of the previous year.
But the UK's legal market has grown used to violently fluctuating financial results; the question is whether the top 20 firm has a solid foundation for the future.
Pinsents managing partner David Ryan, for one, is characteristically quick not to oversell the dramatic turnaround, pointing to a focus on the boring integration issues and costs as a major factor.
"I can understand why people were asking questions after [this] rise in profits, but that is exactly how it happened. If you grow well and keep your costs under control, it will have a very significant effect on your profitability," he says.
Despite its slow start, Pinsents also seems to have learned from its earlier tie-ups, a theory best illustrated by the way in which the firm succeeded in keeping merger costs down to £4m, a low figure for such a sizeable merger, most of which was absorbed in its 2004-05 year.
Ryan explains: "Very few mergers get a good reception. We have been through three now and the pattern is always the same. After all the initial cost, we kept a very tight rein on the business and kept our [running] costs under control, which meant the additional revenue we generated was able to drop through to the bottom line."
According to senior partner Chris Mullen, the merged firm also avoided imposing the swathes of redundancies predicted by rivals, pointing instead to the lean structure of both Pinsents and Masons and the lack of significant property costs generated by the deal.
The symmetry of the office locations was another reason behind the relatively smooth transition, although Mullen concedes teething problems in Manchester, which has lost a raft of partners during the last 12 months, particularly in its corporate group.
"The merger exacerbated some issues that were already there, going right back to when Pinsents took over Chaffe Street in the city, and there were some things that needed to be resolved," he says.
"Now we have dealt with those issues, I would expect Manchester to be outperforming our other offices within a year. There are some fantastic opportunities up there."
Following through on the core rationale for the 2004 merger, however, has not been so easy. The firm built much of its patter around the prospect of cross-selling to construction and corporate clients but it has often been other practice areas that have provided the impetus during the last 12 months.
A greater emphasis on infrastructure work has shifted the firm's terms of reference, with IT, outsourcing and projects currently cited as strong performers.
Pensions and tax have also continued to provide a steady income flow and while construction has continued to reel in regular instructions, it has thus far failed to ignite quite as management had hoped.
The firm's insurance and technology practices have also both benefited from regular instructions for legacy Masons clients, a positive impact that is acknowledged by rivals. The two practices can also respectively point to eye-catching client wins for Royal & SunAlliance and BT to back up the puff.
But it has not all been plain sailing. Progress within the firm's corporate division, the cornerstone of Pinsents' business, is less evident, although Mullen insists it remains very much on course.
There are signs of recovery, with the firm this month securing its first transactional work for longstanding construction client SIAC after earlier this year sealing a first corporate mandate for legacy client Amey. But many would say that Pinsents' transactional practice could do better, notably in private equity, once a historical strength of the firm that has fallen somewhat by the wayside.
"We will not always get the mega-deals [in corporates], we know that – but in the mid-tier we can be extremely successful," claims Mullen.
Given its ambition to be the upper mid-market firm of choice, London has become the centre of operations for Pinsent Masons during the last 12 months. The firm last month completed its move into a flagship office at Citypoint – though part of its London business remains at Aylesbury Street in Clerkenwell – and the bulk of its practice heads and client partners are now based in the capital.
Attempts to beef up the firm's commercial profile in London have not been confined to the boardroom and have already included regular sponsorship at Islington's Almeida theatre. The firm's 100-partner London practice, which generated about £75m in 2005-06, is now larger than those of national rivals Eversheds, Addleshaw Goddard and Nabarro Nathanson.
Mullen says: "We think we have a great offering in London, but the market does not quite get that yet. We want to shout from the rooftops about our strength here."
His battle cry is backed up by a renewed investment in the firm's national banking practice, previously regarded as an under-powered area, with Pinsents looking for a more muscular presence in acquisition and project finance.
A spate of recent hiring in the banking practice, including last week's arrival of Eversheds acquisition finance specialist Matthew Heaton and restructuring specialist Seamas Gray from DLA Piper, has underlined the drive.
Those two hires – both senior associates to partner level – also suggests the firm is following the success of DLA Piper and Simmons & Simmons in targeting the partners of tomorrow rather than focusing dogmatically on lateral recruitment.
Bolstering finance is also set to form a plank of Pinsents' new three-year strategy, which Ryan began to draw up last month under consultation with the partnership.
The new-look plan, which is set to kick in from April, is likely to focus on the 17-partner banking group, which is aiming to double its revenues by 2009, while back-office functions such as IT are also earmarked for investment.
Other early targets include increasing turnover to £250m within five years by organic growth alone. It is also clear that the firm, which is currently in alliance talks with 200-lawyer German practice Luther, is seriously turning its mind to international expansion, both through formal alliances and by direct moves into foreign law.
Mullen says: "It is obvious that to service the calibre of clients we want to service, we have got to have a convincing offering in Europe. If a merger is the natural next step, then we certainly would not be against it in principle."
And yet many questions remain. Critics still contend that the Masons tie-up has, in many ways, failed to deliver on cross-selling, particularly for corporate.
These same people question whether tight cost control can take the firm much further than one year of rebounding profits, forecasting far less impressive results to come. Likewise, the legacy of three mergers – in particular the difficult Pinsent & Co/Simpson Curtis union – has left the firm with much cultural baggage.
Mullen and Ryan claim that the firm has moved past this legacy, pointing to this year's move to draw up a set of corporate values and citing a renewed desire to take a positive message to the market over the firm's direction.
All but the most churlish would concede that the firm has won itself more time to put its newly-expansive vision into place. But until the firm's 2006-07 results emerge, the jury remains very much out.
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