Only the lonely: following the collapse of merger talks Addleshaws and Maclays are back on the market
What's next for the two firms now their tie-up talks have foundered?
February 25, 2016 at 02:08 AM
6 minute read
"Maybe tomorrow a new romance, no more sorrow, but that's the chance you've got to take, if your lonely heart breaks,"
So sang Roy Orbison in 1960s ballad Only the Lonely. Following the collapse of their merger talks, Addleshaw Goddard and Maclay Murray & Spens will now have to follow Orbison's advice and find a new date, according to partners familiar with the firms.
A merger between the two would have continued the trend for unions across the Scottish border, following in the footsteps of Pinsent Masons and Scots firm McGrigors, which merged in 2012, and CMS Cameron McKenna and Dundas & Wilson, which merged in 2014.
One former Maclays partner says a replacement merger is now essential if the Scottish firm is "not to be written off".
The impact of the aborted talks is likely to have a bigger effect on Maclays than Addleshaws. Particularly given Maclays has failed to seal a deal several times before. The firm went through two bouts of talks with legacy Bond Pearce before that firm's tie up with Dickinson Dees to create Bond Dickinson in 2013.
Now, after a rush of tie-ups, only a handful of large Scottish independents remain, including Brodies, which says it plans to stay alone, and Maclays, which remains open to a merger, although the firm stresses this is not its only option.
A Maclays spokesperson said: "We are resolutely committed to growing the firm organically, through lateral hires, strategic acquisitions, or mergers."
The issue for Maclays will be how it achieves growth without a merger. As the senior partner of one English firm says: "There are significant challenges for firms which have historically relied on the Scottish legal market for revenue because of the impact of 2007-08 on Scottish banks."
Scottish banks were particularly hard hit by the recession with HBOS absorbed by London-headquartered Lloyds and both Lloyds and RBS receiving significant financial support from the UK government.
One former Maclays partner adds: "It leaves them in the same quandary they have been in for a number of years, it's very difficult for a Scottish independent to service a national or international client base, they need a bigger and more widespread platform to enable them to do that."
The firm has an impressive client roster including Aberdeen Asset Management, Barclays, Land Securities and Royal Bank of Scotland and has been able to, says one former partner, "punch above its weight".
Another former Maclays partner though warns that without a bigger platform the firm risks losing clients, pointing to engineering firm Weir Group's recent panel review, which saw Maclays lose out despite the pair's long-standing relationship.
A senior partner at an English law firm pointed out the benefits for Maclays in a tie-up saying: "In Scotland there are too many lawyers scratching around after too little work."
He notes that the Pinsents' model has worked well, allowing the firm to keep its Scottish lawyers working with English work.
A Pinsents partner agrees saying: "Maclays need to do something and in my experience of Pinsents and McGrigors, this has been a great thing for us, you don't necessarily want to be in a squeezed Scottish medium sized firm."
The collapse of the deal is seen as a blow to Maclays by former partners who saw the two firms as a good fit. Both count Network Rail as a key client in addition to sharing a number of key banking clients.
For Addleshaws the benefits of the tie-up were always less clear. The merger would have given the firm access to Maclays' client base and lower-cost base offices to drive profitability.
Under the relatively new leadership of managing partner John Joyce the UK firm appears to be on the way up after a sticky patch.
A management figure at an English law firm says: "I didn't quite understand why Addleshaws were doing the Maclays merger I couldn't quite see the sector fit or the service line fit."
One Addleshaws partner describes himself as "delighted" that the deal isn't going through as, "from a City point of view it was absolutely nonsensical".
A former Addleshaws partner argues that the Maclays talks were a symptom of the firm "struggling to know what to do" after an international push starting in 2012 with openings in Singapore and Dubai, and subsequent openings in Qatar, Oman and Hong Kong.
However, Joyce, who took over from Paul Devitt as managing partner in 2014, has committed the firm to a new five-year plan with aims including getting top earning partners up to £1m by 2019. Last year the firm's top earners were on £936,000, indicating early success in increasing profitability.
While Joyce has been successful in increasing profitability and financial discipline, with the exception of the failed-Maclays bid, he has not made any dramatic strategic moves akin to his predecessor's Paul Devitt's international expansion.
A former Addleshaw's partner says: "The firm has gone from lots of strategy and no substance to the other way, a bit like a swerving car, from one side to the other."
An Addleshaws spokesperson said: "Partners know where they stand with Joyce, understand the plan and respect his no-nonsense approach. The partners do now know where they are going and are committed to delivering.
"The firm hadn't performed to its full potential in recent years and the early part of the current strategy was about re-focusing on the fundamentals. At the end of year one we've delivered what we set out to achieve."
He added that there was a "renewed sense of optimism and ambition around the business" after it increased profitability in 2014-15 and the firm's income reached its highest level since 2007-08.
Maclays and Addleshaws may not have successfully sealed a deal this time, but as Orbison asked, "maybe tomorrow a new romance?"
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