The UK market continues to undergo extensive market consolidation in 2012. A recent analysis of the Hildebrandt Institute’s MergerWatch data across all size ranges indicates that UK merger activity for 2012 has already exceeded that of 2011, with almost the entire second half of the year to come. This is particularly true of domestic UK M&A.
*Based on merger announcement date; a cross-border deal is defined as any UK merger or acquisition involving a non-UK headquartered entity, either as target or acquiror.
Last week we examined the returning trend of redundancies to the UK market as firms look to strategically re-adjust their practices in areas suffering from low demand. At the same time, firms are continuously looking to grow and build their competitive advantage in terms of scale, deeper or broader service capabilities, and geographic coverage, in order to be viewed as credible candidates for work by clients. For many firms, merger is currently the preferred growth route for building deeper or broader bench-strength in certain practice areas, or when looking to expand their geographic platform.While international mergers received much of the spotlight in 2011 as a number of leading UK firms looked to add international capabilities in markets such as Australia and Canada, this year it has been the UK middle market which has seen much of the recent UK merger activity. And within the mid-market, it has been Scotland that has seen the largest amount of interest.
Eight mergers involving Scottish firms have occurred so far this year and five of the eight have involved English firms acquiring Scottish targets. The largest and most prominent saw UK national firm, Pinsent Masons, merge with McGrigors, one of the four leaders in Scotland (termed the ‘Big 4’). The four other Anglo-Scottish tie-ups also saw English-based national firms (or ‘emerging nationals’ in terms of regional firms seeking to build national scope to their regional businesses) adding Scottish operations:
- Shoosmiths, a regional firm with substantial operations across the midlands and southern England, acquired Edinburgh-based commercial firm, Archibald Campbell & Harley;
- Southwest regional firm, TLT acquired Glasgow’s Anderson Fyfe, a Scottish firm with both a mid-market commercial focus and a volume services division concentrated on debt recovery services for financial services clients;
- Northern commercial firm, DWF* merged with mid-sized Scottish firm, Biggart Baille;
- Nationally-focused insurance and disputes firm, DAC Beachcroft†, acquired Glasgow’s Anderson Solicitors, a similarly focused insurance and dispute resolution specialist.
In addition, Legal Business recently reported in its July/August issue that both Dundas & Wilson and Maclay Murray Spens, two other ‘Big Four’ firms recently held unsuccessful merger discussions with English firms, Bircham Dyson Bell and Bond Pearce respectively. Moreover, according to Legal Business, up to half of the Top 20 firms in Scotland are in merger discussions or seriously considering merger at present.
The situation in Scotland is a good example of consolidation driven and accelerated by market forces. The Scottish market contracted greatly during the credit crunch. The UK government was forced to bailout two of the largest Scottish Financial Institution clients, Halifax Bank of Scotland (HBOS) and Royal Bank of Scotland (RBS). HBOS was ultimately taken over by a rival UK bank, Lloyds TSB, while RBS continues to be majority-owned by the UK Government.
This had a huge impact on demand levels in the legal market, particularly in transactional areas, as operations and decisions making has moved to London, and little prospect of this aspect of the market returning to pre-Lehman levels.
While a few Scottish leaders had already begun to position themselves more broadly as national competitors in the UK, the credit crunch has accelerated this movement and has now driven mid-market firms to seek a similar positioning. The end result has been an increasing number of Scottish firms joining (or contemplating joining) larger UK firms. They provide a broader geographic platform and brand awareness across the UK market, allowing the Scottish targets greater access to work and clients outside of Scotland.
* Interestingly, this merger has followed three other mergers over the past year which has seen DWF build greater market coverage across the north of England, including Newcastle’s Crutes, Manchester-based insurance specialist, Buller Jeffries, as well as private client boutique, Lane-Smith, also based in Manchester.
† DAC Beachcroft is itself a product of a very recent merger between two insurance and disputes focused firms; London’s Davies Arnold Cooper and UK national firm, Beachcroft.