As the Gazette went to press, it was unclear whether a drinks party at national firm Cobbetts was going ahead as planned. In the uncertainty following the firm’s acquisition amid financial troubles, the atmosphere at the Birmingham event would hardly have been conducive to ‘a wind-down and a few celebratory beers’ as the invitation promised. A wind-down of a different kind, perhaps.
One person probably not in the mood for celebrations was Jayne Firth, whose recruitment from Pinsent Masons as first associate on Cobbetts’ pensions team was announced on 17 January. Firth had said: ‘I look forward to working with the teams at Cobbetts to build on our existing high-quality client base with a view to further extend and modernise the services we provide.’
News of Cobbetts’ financial troubles appears to have come as a shock to almost everyone. On the day last week that it announced that ‘the appropriate course at this time is for the firm to obtain the protection of an interim statutory moratorium to enable a sale of the business and assets’, it tweeted: ‘Welcoming one of our new directors… Nadeem from @Cobbetts talks about his appointment to the @JCIManchester team.’
Certainly, there was little indication of trouble ahead in the firm’s announcement of half-year results in December, headed ‘a steady ship at Cobbetts’.
Managing partner Nick Carr (pictured) announced fee income of more than £20m – consistent with the previous year – although a profit figure was absent. Carr said: ‘Our half-year results ensure we remain on target, and new client wins mean that trading predictions for the next six months are strong. We expect to meet our financial targets by year end.’
Within six weeks, the firm had created a debenture securing lender Lloyds TSB against all of its debt and future debt.
Just a few days later, the game was up and a fire sale was under way, culminating in the announcement of a pre-pack acquisition by DWF – the very firm that had been the subject of merger talks last year. Cobbetts refused to comment further, amid widespread speculation about the causes of the collapse.
However, some facts are already clear. According to the most recent financial report, filed last January for the 2011 calendar year, Cobbetts was battling against falling profits despite seeing turnover increase. Profits fell by £400,000 year on year to £10.6m. During that period, the largest amount drawn by a partner went up from £292,500 in 2010 to £400,000.
Long-term loans were reduced from £9m to £6m, but the short-term debt – that which was due to be paid by the end of calendar 2012 – jumped from £591,000 to £2.7m. Whatever the state of its finances more recently, Cobbetts continued to make hay – or so it seemed. Last July the firm promoted 24 members of staff across its four offices, including five to partner. The retention rate for trainees rose to 80% in 2012, up from 73% in 2011.
And while the likes of Eversheds, Pinsent Masons and CMS Cameron McKenna made headlines by collectively pruning hundreds of jobs last month, there were no bad news stories at Cobbetts. Cobbetts is a full service law firm with a mixed client base of individuals and businesses. Recent work has included advising Premier Inn on its largest-ever hotel opening, working with supporters trusts to acquire stakes in Rangers and Portsmouth football clubs, and providing legal support to the Manchester International Festival.
It appeared to be building on steady growth over the past 11 years, through mergers with Fox Brooks Marshall and Read Hind Stewart. It had offices established in expensive areas of Manchester, Leeds, Birmingham and London. Reportedly, around half of the firm’s 500 staff were fee-earners.
There was, however, an element of the ‘squeezed middle’ about Cobbetts. Not wealthy or prestigious enough to cast off the regional tag and enter the higher echelons of the legal profession; nor resilient enough to stave off the threat from other firms snapping at its heels in the crowded Manchester market.
A market-moving merger might have been the solution – as it will surely be for many firms of similar size – but this option collapsed, for unspecified reasons, when DWF pulled out of a proposed deal in January last year. Cobbetts will not be the only firm casting nervous glances at its balance sheet. According to a market survey by the Law Society, Ministry of Justice and Legal Services Board, more than one-fifth of firms had experienced problems with financing in the previous 12 months.
The Gazette’s Cobbetts archive is filled with new hires and concluded deals. Most intriguing is a story from 2006, where Cobbetts and now-defunct Halliwells signed up to a legal practice course for their future trainees. Now the two firms are linked once again, but for all the wrong reasons.