An ever closer legal union? Published today at The Guardian
Something interesting is happening to the legal services market in Scotland.
Firstly, like everywhere else, Scotland is feeling the effects of a double dip recession. This has shrunk the legal sector, dried up a good deal of commercial and domestic property work and left smaller law firms concentrating their billable time on wills, trusts and executries.
For the medium to large firms in the Scottish market, however, the seismic event of the past few years has been the falling away of work from the two most significant clients in the country: The Bank of Scotland and The Royal Bank of Scotland.
To give an idea of just how central this work is, I recall a discussion some years ago with a senior partner in one of Edinburgh’s grandest firms. He pointed out that in 1800 their two largest clients were the banks and that this was still the case over two hundred years later. Indeed, the decline of bank business in Edinburgh – which all the major firms share in — has been compared by some to Glasgow’s loss of heavy industry in the 1950s, or the disturbance of an ecosystem in which surveyors, lawyers, accountants and even sandwich shops have traditionally lived and thrived. Of course both banks are still very much present in the Scottish market, it’s just that the transaction work which they consistently provided may not return on anything like the scale it once was.
Despite these changes, however, there is a great deal for lawyers to be optimistic about: the market has dynamism and Edinburgh is growing again as an eminent financial centre with secure funds under management; it’s attracting headquarters for banks such as Virgin Money, Tesco and Green Investment; the city has over 700 established financial services firms; it’s building a significant reputation for technology start-ups with IPO ambitions; there’s oil and gas work and development; and it’s still one of the top places in the world to live, work and study.
But the thing which is most interesting in the industry at the moment is the rapid trend of mergers between Scots and English firms. The most prominent link up earlier this year was between McGrigors, one of Scotland’s lead firms, and Pinsent Masons. Others have followed: DWF and Biggart Baillie, Shoosmiths and Archibald, Campbell & Harley, DAC Beachcroft and Andersons. A number of other firms have featured in the rumour mill. The trend is a very significant one for a jurisdiction which has always been fiery about its independence: equally, however, its very independence from the rest of the UK legal sector has perhaps led Scots firms and their lawyers to underplay their hand on a wider stage.
Why are these mergers happening, and what are the incentives on both sides?
From the Scottish perspective, a link up with a strong London or regional player gives the strength and support of a larger firm in these tough economic times — for even the biggest in Scotland are small when compared to the likes of the magic circle firms. Many clients will have interests across the border, and it makes sense in those circumstances for the same firm to be able to offer a joined up service. For lawyers in Scottish firms, a link up with a global practice brings the potential to work and travel far beyond the jurisdiction’s traditional boundaries.
From the opposite perspective, merger with a Scots firm is likely to bring in a high quality team of lawyers with an established share in some very lucrative markets including, for example, oil and gas work. As an added bonus, for those working on high value London deals there will suddenly be the availability of a skilled team of commercial lawyers working out of Edinburgh, Glasgow or Aberdeen, who would then be in a position to share the workload at a competitive rate.
Overall, the trend of cross border mergers meets a number of needs on both sides, as well as being a timely reminder that despite obvious differences (such as land law) there is much which is shared across the two jurisdictions. After all, the Act of Union in 1707 gave Scots the commercial freedom to reap the benefits of England’s trade networks, whose doors had until then been closed to them; and it gave England the talent, drive and imagination of some of Scotland’s best people. The combined strength from working together across the border is greater than the sum of the separate parts.