Size does matter

Large firms which acquire small partnerships have the world in the palm of their hand as they benefit from fresh contacts and finance.

but staying as a sole practitioner can be as lucrative, writes Gill Webster

Over the past five years, there has been a trend around the high streets of England and Wales towards larger firms of solicitors swallowing up sole practitioners and small partnerships.Statistics from the Law Society speak for themselves.

These show that the number of sole practitioners and firms with up to four partners fell by 3.6% over the past five years and those with between five and ten partners dropped by 9.8%.

By contrast, firms with up to 25 partners rose by 2.6% and larger practices by 17%.

These figures exclude natural wastage and closures.The reason given for these acquisitions is often that larger firms offer economies of scale and specialisations not available within the small firms.

But surely the benefits to the larger partnerships far outweigh those to the smaller practices?According to Roger Holden, managing partner of Hansell Stevenson in Norwich, which recently acquired Emmett & Tacon, another Norfolk firm, there are benefits both ways.His firm has gained several smaller practices over the past few years and currently has seven partners and 45 fee-earners.

He says that in each acquisition, Hansells has secured an established list of clients but also respected solicitors.

In the case of Emmett & Tacon, it gained a civil litigator and a commercial property lawyer.'Many small firms need to assure their clients that they can work to certain standards and, particularly in rural areas such as Norfolk, it's all about service,' he says.

Mr Holden acknowledges the benefit that small firms bring by swelling their acquirer's clients' contacts: 'Partners are a valuable introduction to clients but the clients stay loyal to the partners, not to the firm.

If they are happy with a partner and that partner joins a larger firm, then the client will stay with the larger one and use all the extra benefits on offer.

The partners who come with an acquisition have to stay with the business because they are bringing their goodwill with them.

People buy people.'Nor is there much danger of clients being distracted by partners joining bigger outfits.

'Our experience has shown that most clients will be happy with the move and the new practice because they are guided by the decision of partners they know,' he says.

'And with the high cost of keeping up with new technology and high indemnity premiums, it makes sense to join a larger practice where all this is available.'But there is a big difference between mergers and takeovers, according to Mack Dinshaw, a partner in consultancy Law Mergers and Acquisitions.

This makes it essential for small firms to look carefully at any possible merger, or else get an outsider to do it for them.He says: 'All too often the smaller firm will think they are merging when in fact it is a takeover.

Smaller practices fear the unknown and go into it blindly, often to their own disadvantage.

In a small practice, the fee-earner services the client and his every need.

Once the partnership moves to a larger firm, the client may feel he is not getting the same service, which could lead to alienation and everyone becomes unhappy.

'If there is a divorce, the small firm loses out having lost his clients and his business.

You don't marry lightly and you shouldn't merge lightly.'Mr Dinshaw warns that firms should watch out for mergers intended as a solution to financial problems.

He explains: 'A small partnership may not have the diversity but it may be financially sound.

The larger firm may have the diversity but not be financially sound.

The larger firm may thus be looking to the smaller one to bail it out.'For Eric Robinson & Co in Southampton, the takeover route has worked well.

The firm has ten partners and 40 fee-earners and acquired fellow Southampton firm Docherty Towndrow four years ago.

'One partner retired and as the partnership was already known to us, the decision was taken and it has all worked very well,' says practice manager Julia Nash.'The partnership had a large bank of wills and the work came to us rather than going to another firm.

At the same time, the remaining partner -Barbara Robins - who joined as an assistant solicitor, was very well known in the town and brought a lot of work with her, especially on the conveyancing side,' she says.On Mr Dinshaw's point, Ms Robins says that sometimes what may seem a merger is in fact a takeover and that can work with varying success.

In such cases, all the new staff may leave because there is ill-feeling.

'It needs very careful handling, as staffing can be a minefield,' she says.For a conveyancing sole practitioner, there are advantages to merging with a larger firm.

All too often mortgage lenders will not deal with sole practitioners, though this is an area the Law Society is discussing with the lenders at the behest of the Sole Practitioners Group.

But according to Ian Lithman, chairman of the Sole Practitioners Group, another staple of small high-street firms - criminal legal aid - is also a major problem.

While sole practitioners can in principle win legal aid contracts, Mr Lithman says the government has made it almost impossible for them to gain criminal defence contracts.Yet for some smaller practices the solution has been organic growth rather than panic merger.

Eighteen months ago, Erica Peat and Simon Diable set up in partnership in Leytonstone, east London.Their work is mostly criminal legal aid, and Ms Peat says the practice is incredibly successful.She says: 'I would never have thought it would have gone so well.

Because of the recent changes in the law a lot of firms feel they have to be part of a large firm to make it work.

There is so much administration and bureaucracy.

Until recently we spent half our time working as lawyers and the other half as administrators, but this has changed as we have now taken on more staff and are looking to increase the size of the firm.'At the moment I wouldn't want to be amalgamated into a larger practice, though I know it does happen.

For us it has been a phenomenal year although bloody hard work.

It's nice being a partner in my own practice and having a certain amount of control.'But she maintains that the situation might change as the practice grows.

'In, say, 15 years' time we may be in a position to take a step back and may want to merge with a larger firm.

It would all depend on whether we had the structure in place to allow the practice to carry on trading under our name,' she says.Ian Shann, now Eversheds' regional managing partner for the east of England, was in a two-partner firm which was absorbed by a 30-partner practice which then joined Eversheds.

'You must think of every aspect before merging with a larger firm and both firms must bring something to the merger,' he says.

'You must also have a positive reason for doing it.'He continues: 'The most significant feature for us was relationships.

I had worked together with my partner for nine years and we knew each other very well.

To move into the larger firm and understand not only the personalities but the politics was very different.'Mr Shann maintains that losing the name was not a problem, although it was kept it on letterheads for a time, 'which helped our clients acclimatise'.

He adds: 'As a result of the move we lost some of our private clients who wanted to stay with a smaller firm and we lost some staff for the same reasons.

But most of our clients benefited from the move.

We did it because we wanted to offer our clients a larger field of expertise.'He warns that such a merger is not easy.

'You give up a lot of control and don't influence affairs as you once did.

It can be quite a trauma and not something any small firm should enter into lightly: merge in haste and repent at leisure.

If you do decide to de-merge, it is like starting again and you could lose all credibility - as well as your original clients.'Gill Webster is a freelance journalist