Professional services firms in Scotland have suffered real pain as a result of the near-collapse of the country’s two biggest banks, the shift in their centre of gravity to London, the continuing loss of corporate headquarters and the slump in commercial property and M&A deals.
Professional services firms are generally reporting falls in turnover of 5 to 15 per cent in 2009 – with those specializing in commercial property harder hit. The gravy train of validating the security on bank loans has hit the buffers. There have been redeployments into the busier areas of litigation, insolvency, restructuring and refinancing.
However, law firms had geared themselves up for a continuing boom and have been forced to cut jobs across the board – as well as implementing other measures including pay cuts, unpaid leave, four-day weeks, and failing to give trainees promised permanent posts.
Alan Campbell, managing partner at Dundas & Wilson, has described what it felt like to be running Scotland’s largest corporate solicitors firm at the height of the crisis last October. Speaking to Scottish legal magazine The Firm he said it was as though “a conveyor belt had suddenly stopped, and there was no information about when it was going to start moving again”.
D&W’s fee income for the year ended April fell by 11.7 per cent to £66m, of which 38 per cent was generated by its London office, and this year the firm made 46 of its 669 staff redundant.
“Times are tough. The banks are still major users of legal services but they’re not using them as much as they were before – and they’re focusing on different things,” says Bruce Minto, managing partner of Dickson Minto. “Even though deals have slowed up enormously, the banks are now starting to make some decisions and starting to move forward with restructurings and refinancings.”
McGrigors has managed to maintain more of its pre-credit crisis momentum than most of its peers. Since January 2008, the former KPMG affiliate has opened a Manchester office, acquired London firm Reid Minty and merged its Belfast operation with L’Estrange & Brett. Like D&W, it is keen to be seen as a UK “national” firm rather than as a purely Scottish one.
Philip Rodney, chairman of Burness, prefers to make a virtue of his firm’s lack of a London base. “We’re proud of being Scottish. Yes, the banking crisis has had proportionately higher impact on Scotland but we feel there is still plenty of growth potential in this market and it’s going to come from unexpected and non-traditional areas. We’re optimistic,” he says. “We also get lots of referrals from English lawyers, whereas the firms with London offices don’t.”
Among professional services firms, accountants were more prescient
The accountancy firms seemed more aware than the law firms that a correction was imminent in early 2007, and reconfigured their businesses away from transaction-based activities and tax advice and towards insolvency and restructuring ahead of the crash – which is one reason they have seen smaller falls in turnover and made fewer lay-offs than the law firms.
KPMG has taken a hit from the loss of the HBOS audit, while PwC, having secured the merged Lloyds Banking Group audit, increased Scottish revenues by 5 per cent to £110m in the year ended June.
Johnston Carmichael, Scotland’s leading independent accountancy firm, also expanded revenues – by 8 per cent to £24.5m in the year ended May – and has not needed to make any of its 416 staff redundant. Sandy Manson, chief executive, says: “We’re Scottish-controlled not London-controlled, and believe in investing in people.” The firm is looking to expand particularly in the central belt where it is seeking mergers with niche firms “which have a good cultural fit”.
Goaded by the absence of speculative developments and the expectation that public sector projects will dry up from 2010, architects have been reinventing their businesses. The larger firms have sought further to spread their wings internationally.
David Stark, international director of Keppie Design, says: “The commercial third of our business – offices and shopping centres – withered away last year and we’ve had to reduce our headcount from 300 to 200.” The firm is today working on eight university campuses in Libya and intends to become a bigger force in the Gulf with an office opening in Doha.
Rival Scottish architecture firm RMJM, part-owned by the construction magnate Sir Fraser Morrison, spread its wings internationally earlier than Keppie, paying $30m for New Jersey-based Hillier in June 2007.
The firm now has 16 offices worldwide and is looking to bolster its presence in the Gulf. However in April the Edinburgh-headquartered firm, now focused on designing public sector, educational buildings and stadia projects, said it was shedding 60 jobs across its Edinburgh and Glasgow offices.
Other Scottish professional services firms that are gradually building up international empires include the energy consultancy Wood Mackenzie, performance measurement group the WM Company and Edinburgh-based risk-management software firm Barrie & Hibbert.
Frank Blin, chairman of PwC Scotland, has warned that the next few months are going to be “a bit bloody” for the corporate world and professional services firms in Scotland: “I think things are going to be tough,” he says. “There are still going to be constraints on funding and debt.”
This article on Scotland’s professional services firms was published in the Financial Times (FT) Doing Business in Scotland Supplement on 4 November 2009