West Midlands: cautious ambition

Once a locomotive of the British industry, the West Midlands has suffered badly from the recession. The collapse in property prices has dragged down the local economy, the previously healthy volume of corporate transactions has been reduced to a trickle, and general commercial work has suffered from the exodus of manufacturing work to the Far East. Even for the most positive thinking lawyers, 2009 was not a good year, and, much as they would like 2010 to mark the beginning of the recovery, most are preparing for another year in the doldrums.

'Clients are retrenching and the legal market is changing,' says Andrew Whitehead, managing partner at 46-partner firm Martineau Johnson in Birmingham. 'Just as we started seeing some green shoots in the private sector, the public sector is beginning to make cuts. We're already conscious of the pressure our education clients are experiencing, and law firms with clients in the public sector generally will need to revisit how they provide their services.'

The contracting legal pie is also the battleground of previously unseen turf wars. 'City firms that came to Birmingham on the back of corporate and property work in the boom times are now pulling back into their main areas,' Whitehead continues. 'Equally, we've seen some pitching for work they would not have been interested in previously.'

It is not that economic activity has completely ground to a halt. Ian Shovlin, for instance, managing partner of 29-partner firm Higgs and Sons, says their turnover grew a healthy two per cent last year, allowing the firm to give staff a 1.5 per cent pay rise and invest in a new £1.5m office, making the firm the largest in the Black Country.

In addition to revenue from areas that one would expect to do well in a downturn, such as employment and dispute resolution, Shovlin says his firm has seen a noticeable increase in corporate and property work since the summer. 'Banks have started relaxing their lending parameters, which has helped generate work in commercial property,' he says. 'We have also seen opportunities in the residential property market, with some investors taking advantage of lower prices.'

On the corporate side, Andrew Whitehead says that Martineau's M&A order book was filling up again. 'Last year there were plenty of deals in the pipeline but few came to anything,' he says. 'Now they are moving through to completion.'

Investment money in particular is fuelling this new growth, according to Whitehead, whether it is inward investment which sees foreign companies investing in British businesses, or non-UK property buyers investing in a piece of Midlands real estate.

There has also been a minor surge at the lower end of the market. Richard Cliff, managing partner at ten-partner practice George Green, in Cradley Heath, says his firm was 15 per cent ahead of target in December, thanks in part to a rise in litigation and corporate work '“ in particular, lower-value work from larger organisations which would normally have instructed City firms.

Developing specialisms

George Green is also looking ahead to the new legal order set to emerge after the recession and is positioning its private client services at the upper end of the market with a wealth management offering targeting the high-net-worth individuals segment.

'We're looking at a holistic offering to owner-managed businesses,' says Richard Cliff. 'It's not just about trust and tax planning on its own '“ for instance, if we're acting for a client on a corporate matter we can also structure the company's shareholding for the future with personal tax planning in mind.'

Martineau Johnson is also planning on retaining a full service offering covering both business and private client. It has even expanded its family law practice with a few lateral hires to cater for a client base ranging from larger corporations to SMEs and landowners.

Unsurprisingly, the counter-cyclical nature of private client work has proved a valuable asset in difficult times.

Even 18-partner practice Shakespeare Putsman, which is aiming to become one of the top three firms for commercial work in the region, is holding on to its private client department to be able to offer joined-up services. Plus, there are more immediate benefits. 'The cash cycle is quite short; you do the work, you get paid,' says chief executive Paul Wilson.

Some firms are also developing expertise in specialist markets. Higgs and Sons in the healthcare sector, for instance, and Martineau Johnson in education and clean technology '“ two markets supported by significant policy drivers in Britain and Europe.

Whitehead, whose firm is one of the founding members of The Legal Sector Alliance, a grouping of firms promoting responsible environmental standards for the legal sector, says this has also helped with clients.

Environmental ethics was initially only a relevant factor for public sector clients who expected their lawyers to provide evidence of their carbon reduction commitment, but this concern has now extended to large corporates, according to Whitehead, and this will be an important consideration when the market picks up in earnest.

But even with specialisms, lawyers are having to work extra hard to keep their clients on side and demonstrate they can make a tangible contribution to their business.

'Marketing legal services has become more difficult,' comments Paul Wilson. 'Clients are fighting for their own survival so we have to deliver law in a way that really matters.' His firm, whose client base stretches from the south coast to Scotland, has made significant investment in client retention training.

Reaching out to local clients may appear more straightforward. The usual way was through the regional press but that model is already being eroded, according to Wilson. Reaching out in more innovative ways to your local base is now just as important as reaching out to clients further afield, and it requires even greater effort and more time.

'We spend more time with clients,' agrees Higgs and Sons' Ian Shovlin, who also says the firm has stepped up its client review programme. 'We have to work in partnership with them and think more about offering fixed-price billing '“ now and in the long term.'

Battle for talent

The contraction of the market has also had ramifications for recruitment.

'Just six months ago you would still be thinking of hiring lawyers about six months ahead of actual need,' comments Paul Wilson. 'The market is almost flat now, and there is little confidence that it will grow significantly in the short term.'

Despite this, recruiting the best legal talent remains a key concern as firms gear themselves up for the post-recession market, with many of the new hires coming from larger City firms. Shakespeare Putsman, for instance, has recruited at partner level from Eversheds, Wragge and Pinsents. In a minor coup for the firm, George Green has also managed to attract the former head of the private client department at Clarke Willmott.

Such high-level lateral hires show two things: that senior lawyers are finding smaller local firms a realistic alternative career plan, and that these firms are confident enough about their strategies that they are prepared to spend money on recruiting the best lawyers around. It also reflects a general trend towards the provision of sharper, specialist services for demanding clients.

This is partly in response to nascent trends, with clients putting greater pressure on their legal advisers, but it is also as preparation for increased polarisation in the market.

The new market

The new LSA market will be divided between lower-end services at lower rates, which will be provided by larger organisations on a commoditised basis, and higher-end services commanding higher fees, which will be provided by highly specialised organisations, either with specialist or niche expertise or local firms with a special relationship with clients.

In this market, only the most talented junior lawyers with sharp commercial skills will secure jobs, predicts Paul Wilson. Not only that but the smaller firms on the high street providing only run-of-the-mill services will gradually be squeezed out, especially if they cannot control their cost base.

As elsewhere in Britain, these smaller firms are already feeling the pressure. 'Size will increasingly make a difference,' says Ian Shovlin. 'These firms are at risk, even if they have been the family firm for generations of clients.'

Rather predictably, many of those firms are looking for partners to merge with. In the main, their larger counterparts continue to prefer organic growth and lateral hires, but some are considering the merger route as a suitable option to faster growth (see also 'Legal aid opportunities', below).

George Green, for instance, receives regular approaches and would be interested in merging with a firm complementing its core offering. Shakespeare Putsman, keen on accelerating its growth from a £18m turnover firm to somewhere beyond £30m, is also alert to opportunities. 'For mid-tier firms, this is the minimum size if you want to be able to make the IT and strategic investments to achieve economies of scale and be competitive,' says Paul Wilson.

Wilson's cautious ambitions are shared by lawyers in other firms in this mid-market. Lawyers are relieved to have survived so far but acknowledge that there is no longer a guaranteed expectation that work will return in the same volumes as before the recession. For those that have managed to stay in the game, the year has started rather better than 2009 ended; but the announcement last week that Britain's public debt in January had, for the first time since 1993, not decreased, will do little to provide much-needed reassurance that the country was getting back on its feet.