KPMG ADMINISTRATORS have been lined up to arrange a pre-pack of financially stricken law firm Cobbetts.
The deal, which is subject to court approval, will be pushed through after Cobbetts announced on 30 January its intention to appoint administrators, Accountancy Age’s sister publication Legal Week reports.
A pre-pack is where the sale of a business is arranged prior to it entering administration and is sold immediately after entering into the process when administrators are appointed.
If the pre-pack is approved, the process of transferring Cobbetts’ staff to DWF will begin in the next seven days.
In a statement, DWF said that “poorer than expected trading in November and December last year caused Cobbetts to review its financial position and subsequently obtain an interim statutory moratorium to enable a sale of the business and its assets”.
DWF managing partner Andrew Leaitherland (pictured) said: “DWF’s plans to grow, in a strategic, targeted way have been clearly set out and this move supports that goal. I am confident that the merging of the two firms would bring genuine benefits to both and, importantly, the joint client base. There are many synergies between the two firms in terms of the sectors in which we operate and this collaboration will further strengthen our existing business. I am very much looking forward to welcoming the new team to DWF.
“The legal industry as a whole has faced significant challenges. We will do all we can to make the integration as smooth as possible.However, as you’d expect in a move of this size, there are some areas of overlap and we may have to displace people or find them alternative roles. We will work hard to support all those involved.”
The deal comes on the back of failed merger talks between the two firms last year. The proposed tie-up was called off last January, with a joint statement from the firms citing “uncertainty in market conditions”.
Cobbetts has been hard hit in the wake of the financial crisis, and has seen revenues fall almost 25% from a pre-recession high of £59.3m to £45.2m last year. The Manchester-based firm – which employs 492 staff and has 74 partners – confirmed on 30 January that it was aiming to sell off its business and assets as soon as possible.
Should it go ahead, the tie-up could see DWF’s total headcount rise above 2,500, with the news coming shortly after the expansive firm secured a merger with professional indemnity law firm Fishburns and the hire of a 22-strong banking and finance team from Chafes Solicitors, with both deals set to go live today.
The agreement would mark another milestone in DWF’s goal to reach the UK top 20 by 2015.
One Manchester partner at a rival firm said: “It’s a shame, but there had been smoke coming out of the back of them for some time. The word in Manchester was that it had turned a corner, but there was obviously a deep-rooted financial problem that left it with little option.”
Cobbetts, which ranked as high as 42nd in the UK top 50 in 2004-05, has suffered in the wake of the credit crunch, with three separate redundancy rounds during the downturn resulting in 69 jobs losses across the firm.
The firm had entered the top 50 after the Manchester stalwart embarked on an ambitious bid in the 2000s to refashion itself as a national player with mergers in Leeds and Birmingham. However, its expansion ultimately stretched it after the credit crisis in 2007 hit its core property practice.
One partner at a UK law firm said: “A pre-pack deal was expected but the challenge now will be holding the firm together in the weeks and months that follow. There will undoubtedly be a number of parties showing an interest in the talented individuals and teams at Cobbetts, while you have to question whether some will want to be part of DWF.”
Geoff Rowley, senior partner at FRP Advisory, which was borne out of a pre-pack deal of Vantis, said: “Regrettably, it comes as no surprise that another significant professional services firm is facing insolvency. This is likely to have arisen due to a toxic mix of fixed overheads – office and high staff costs being the core outgoings – and an inability to react quickly enough to deteriorating market conditions. Fee earning in the regions has been particularly hard hit.
“With low levels of transactional work, there is ongoing pressure on fees and what law firms generally can charge. Those law firms that can continually adapt their business model will have the best chance of survival in what promises to remain a depressed UK professional series market for the foreseeable future.”
This article has been updated from one that appeared on the Legal Week site.
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