Legal Futures: The Challenge of Change

The Changing law market- the opportunities and challenges

Paul Browne, Greenings International

May 2012

Law firm market: Overview

Key issues London a world centre for law firms, worth 23.1 bn, 1.8% of UK GDP Market changing radically partially driven by Legal Services Act regulation changes Falling margins, and clients wanting more for less Losers risk collapse e.g. Halliwells No dominant market leader in consultancy/ advisory Accelerating M&A in fragmented market

Major opportunities, major challenges

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The Changing Market

The legal market , 1980- when many present day Senior and Managing Partners began their legal career

Most firms small, domestic, and undifferentiated, with significantly lower PEP

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The Changing Market

Emerging strategies and challenges- mid tier particularly under pressure
Niche, High PEP

In a few years, there will be seven or eight global practise firms at the top end. Our strategy is to lead that group. David Childs, Clifford Chance

Scale, International

Where to focus?

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Law firm market: 2012 Accelerating acquisitions

Reported M&A to date (May 2012) Pinsent Masons/ McGrigors Wedlake Bell/ Cumberland Ellis Ashurst/ Blake Dawson (JV 2012, merger 2014) SNR Denton / Salans (unconfirmed) Osbourne Clarke (Italy & Spain) Linlaters/ Allens Arthur Robinson Ashfords/ Rochman Landau Herbert Smith/ Freehills DWF/ Cobbetts (abandoned) DAC/ Beachcroft Source: The Lawyer
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Example: New major competitors could emerge ifSalans Denton were to merge Salans Denton income compared to top UK Legal firms

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Source: Legal Business, Companies House, Richmond Browne

Increasingly internationalised competition eg if Salans Denton were to merge

Salans Locations

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Acquisition Dangers & Opportunity

Lack of strategic clarity
- Why are we merging? - Where will the value come from?

Poor due diligence

- Example- Dewey LeBoeuf
- Rushed merger of Dewey Ballantine and LeBoeuf Lamb Greene & MacRae - Followed failed engagement with Orrick Herrington & Sutcliffe - Unfunded retirement scheme left unresolved

- Will a UK firm be the next Deweys? Times, 10/5/2012

Poor post merger integration

- Few firms have (or need) permanent staff with post merger integration experience - Key to a successful merger

But if successfully done, can enable a quantum leap

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Key drivers of change & Law Firm response

Slow growth Imperative to improve cash flow and improve costs Identify new sources of income through better strategic planning Avoid doom loop, with lower PEP losing top revenue earners

Reduce costs and restructure LPO/ BPO/ deconstructing transactions Clients want more for less Differentiate and demonstrate value to clients Increase internationalisation Legal Services Act Deregulation- new business models and entrants External investment including IPO Barristers- respond to clients direct access to bar Manage increased cost of risk function Minimise risk of SRA action

SRA risk management

Fragmented market
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Investigate and respond to M&A opportunities/ competitor mergers Effective post merger integration Need to effectively finance M&A/new business models

Clients want more for less: Deconstructing a transaction

Get the work done at the right level, at the right cost
Partner- complex , challenging, gravitas and innovative thinking required.
Strategic, Board level Magic / Silver Circle dominated.

Standard Legal work e.g. Contract drafting Legal queries

Directors/ Associates at Magic/ Silver Circle firm. Junior Associates have done this historically- but can be outsourced to cheaper operations, either in UK or overseas eg A&O Belfast, AG Manchester, Simmons & Simmons Mumbai.

Commodity legal work e.g. Due diligence, deeds verification, Bulk property transfer

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The Changing Legal Market: Key segments

Magic/ Silver Circle Will keep their pre-eminent position as Board advisors Respond to price pressures by deconstructing transactions/ improved processes Struggle to deliver seamlessly internationally?
Bar Moving slowly towards more corporate-style govenance Some new business models emerging e.g. Riverview Seeing reduced income levels in public sector chambers Some will struggle with direct access from clients Mid market Need to improve financial performance/ cost/ cash improvment Are experiencing more M&A /consolidation Many reviewing new structures/ process deconstruction How to achieve genuine differentiation? High Street National brands emerging e.g. Quality Solicitors New online entrants with lower delivery costs Consolidation is continuing

Conclusion
Major changes, and not all firms will be winners
No one size fits all solution A complex strategic outlook- important to have : a clear position on major external moves A clear view on the competitive position of each firmits client and market focus, how it delivers, and how it is differentiated Implementation key to success Example: Post merger integration Use of programme office Established methodologies Clarity vital Complement internal strength & external firepower

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Next Steps: Contact me if you would like a confidential meeting to discuss the issues in this presentation

pbrowne@greeningsinternational.com
07775 928624

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Paul Browne, Managing Partner, Greenings International: Background

Paul Browne gets things done Chairman/ CEO, Major International Bank Banking 20 years international experience Standard Chartered Bank senior executive: set strategic focus on Asia in 1995 Director, Group Strategy, Barclays Consultancy Consultant, Bain & Company Director, KPMG: Internal consultant/ trouble-shooting within companies Legal Services Ran two 70m income divisions 28% overheads reduction, 20% working capital improvement Profitable growth- targetted key accounts grew 30% in three years Refocussed strategy e.g. Government,, Energy, Infrastructure & Turn-rounds- e.g Private Capital

Personal Background Rugby: Coach, London Welsh Board Editing wifes novels Military history/ archaeology

Education

Manchester /HEC MBA Harvard Executive Education Trinity College, Oxford:

Personal

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