By Ian Fraser
Published: The Business Herald
Date: 11 December 2013
Two of the biggest developments in Scottish professional services in the past year came when global firms set up large “back offices” in Glasgow, both with generous government grants. In April 2013, the accountants KPMG said it would establish “tax centre of excellence” on the strength of a £1.7m regional selective assistance from Scottish Enterprise. In June, law firm Ashurts unveiled plans to set up a back office in Glasgow on the back of a £1.2m RSA grant .
The moves attracted some criticism, with some Scottish law firms crying foul. They argued that it was unfair that Ashursts was getting a subsidy of £80,000 per job, when they had created hundreds without a penny in subsidies. Martin Darroch, chief executive of Harper MacLeod, said the subsidies handed to Ashurts were “surprising” and will push up costs for other law firms, especially given the fact Scotland already has a surefeit of lawyers.
The Big Four accountancy – Deloitte, Ernst & Young, KPMG and PWC – firms have continued to hire hundreds of graduates and produce strong results over the past 12 months. Jim Bishop, senior partner of E&Y in Scotland, says the firm’s goal is to maintain its position as Scotland’s “biggest professional services firm,” which means continuous investment in people.
The “Big Four” have so far brushed aside criticism of the quality of their audit work and lack of competition in the market from, among others, the Competition Commission and the House of Lords economic affairs committee, as well as criticism of the tax avoidance industry that they fuel from the House of Commons public accounts committee. What is more likely to dent their stranglehold of FTSE350 company audits are EU plans to introduce mandatory auditor rotation.
In today’s harsh climate, in which banks are far less willing to lend money to professional services firms than in the freewheeling pre-crash period, some of Scotland’s mid tier accountancy firms are said to be struggling. Some, especially those that expanded too rapidly during the boom, are likely to go the same way as RSM Tenon, which went bust in August 2013, only to find its trading assets snapped up by rival firm Baker Tilly in a “pre-pack” deal. There will be further mergers between mid tier accountancy firms along similar lines to recent ones between BDO and PKF and between the Aberdeen-based firms Johnston Carmichael and Ritson Smith .
The tough, post-financial crash climate killed Glasgow-based law firm Semple Fraser, which went into administration in March 2013, with loss of 62 jobs. Controversially, most of the partners jumped ship to other firms. That followed the collapse of criminal defence firm Ross Harper in May 2012 and DLA’s announcement it was closing its Glasgow office with the loss of 45 jobs. In recent months both DWF Biggart Baillie and Maclay Murray & Spens have announced redundancy programmes in their Scottish offices as firms continue to adapt to the harsher conditions.
In 2012 there were five significant law firm mergers in Scotland – Tods Murray merged with Fyfe Ireland, McGrigors with Pinsent Masons, Biggart Baillie with DWF, Archibald Campbell & Harley with Shoosmiths and Burness merged with Paull & Williamson. There have been fewer in 2013, though Morton Fraser got into bed with Macdonalds Solicitors. In December, Edinburgh firm Simpson & Marwick scrapped plans to merge with the English firm Kennedys. “Some firms are running for cover,” says Philip Rodney chairman of Burness Paull. “They’re huddling up and I’m not convinced that solves problems.”
The erstwhile “Big Four” of Scottish law – Dundas & Wilson, McGrigors, Maclay Murray and Spens and Shepherd & Wedderburn – have to varying degrees been suffering post-credit binge hangovers, and all are said to be “in the market” for deals similar to that which McGrigors pulled off with Pinsents, according to the Lawyer. Some suffered after taking out expensive leases on office space during the credit bubble, with most plagued by inconsistent management and a failure to crack the London market. The collapse of key clients RBS and HBOS also hit them hard.
The firms that are poised to replace them at the top of the corporate law firm pecking order are Burness Paull and Brodies, whose turnovers have reached £38.7m and £46m respectively. In the 1990s and 2000s, these firms made a conscious decision not to attack the London market and to focus instead on being high-end Scotland-only corporate players. Harper McLeod, which saw turnover rise 8.81% to £21m, also benefited from such a strategy.
An edited version of this article was published on pages 8-9 of The Business Herald on 11 December 2013