Melbourne 08

 

 

Many mid-sized law firms with roots in the Victorian clay realised years ago that they would benefit from a presence in Sydney. But some law firms are now looking beyond merely having a presence in Sydney and expect their Sydney office to overtake their Melbourne operations in size.

 

“Our Melbourne office is still larger than our Sydney office, but Sydney will become bigger than Melbourne in the next five years,” says Nick Nichola, managing partner of Middletons. The firm traces its presence in NSW back to 1989, when it merged with Sydney firm Moore & Bevins. The marriage didn’t last and in 2001 the two firms parted ways, leaving Middletons with only a small group of lawyers in Sydney.

 

“We still had a Sydney presence, but it was a very small operation, 20 odd people or so. It took us three years to rebuild the practice.” The firm gained in size when it absorbed the legal practices of KMPG and Acuiti in 2004. “In one year, we went from 20–25 people to 110–120 people,” says Nichola.

 

The firm continued its aggressive growth strategy and last year poached eight partners from other law firms, including Blake Dawson, Minter Ellison and DLA Phillips Fox, while losing only one to Holman Fenwick & Willan’s Melbourne office. This is no mean feat in a market where partners change law firms more quickly than mechanics change tires in a pit stop

 

This year, the firm has already lured a team of five banking and finance lawyers, led by partner Ben Burney, from Sparke Helmore. But Middletons is not immune in the war for talent, says Nichola. “I would deceive you if I said we don’t have retention problems, especially at the second band of 2–5 years PQE. But at partner level we are doing alright.”

 

The majority of Middletons lateral hires have joined the Sydney office. Nichola expects to add more laterals this calendar year, although he emphasises that bringing in new partners is a long and convoluted process. He doesn’t exclude growth of the Sydney office through more dramatic measures. “We would always look at a merger, or integration, of a legal practice; we’re not seeking it, but wouldn’t ignore it if the opportunity presented itself.”

 

 

Mills Oakley, which took home the title of Melbourne firm of the year at the recent Mettle ALB Australasian Law Awards 2008, only opened a Sydney office in February 2006, but CEO John Nerurker was quick to predict that in five years it could “very well be larger than our Melbourne office”. Arnold Bloch Leibler has been in Sydney since 2002, but sought renewed attention for its presence there by having then-treasurer Peter Costello officially open the premises.

 

“Melbourne is probably the slowest market,” acknowledges national managing partner Chris Lovell of Holding Redlich, which has offices in Brisbane, Melbourne and Sydney. “The revenues in Melbourne have gone up by 8% this year, and we budget for a slightly higher increase next year. Sydney is doing 14–15% and we’re looking at a 23% increase across the board.” Most of the growth is taking place in Holding Redlich’s Brisbane office, where the firm has established a strong reputation in construction and infrastructure work. 

 

The success of Victorian firms venturing into the Queensland market has not gone unnoticed. Last year, Mills Oakley opened a Brisbane office and attracted former Ebsworth partner Darren Ho to set up a construction practice. Brisbane is also on the cards for Middletons, says Nick Nichola.

“At this stage, the only [city] that we would seriously look at is Brisbane. Most of our major clients we serve nationally, even though we’re not in every state. There is never an issue with that, expect that sometimes it is an issue for us in Queensland. It’s mainly property related – you need to have people on the ground to do that.”

 

 

But Victoria shouldn’t be written off just yet. The legal industry there might expand more slowly than in other state capitals, but it still offers solid growth. Some firms are even realising growth figures far above the state’s industry average. Peter Kennedy, partner with Madgwicks, said in last year’s Melbourne report that 10% growth is acceptable, 15% is good and 20% is “in your dreams”. But sometimes dreams come true and the firm has seen a revenue increase of 24% over the first 10 months of this financial year.

 

“Litigation is especially strong,” says Kennedy. The firm’s most eye-catching matter is probably its involvement with Opes Prime, where it acts for investors who are trying to recover their shares after the stockbroker collapsed (see the news analysis in ALB 6.5 for more information). It has also seen a good performance from its property practice, which, for example, acted for property developer APCH on the A$100m IPO of Prime Trust. The firm’s energy practice also had a good year. It advised the Danish wind turbine maker Vestas on workplace relation aspects when it closed down its facility in Portland.

 

Unsurprisingly, Madgwicks has no plans to expand into Sydney and says it relies on its membership of law firm association Meritas for interstate work. “Why capture NSW, if you have good associations there?” says Kennedy.

 

For some firms, the diminished activity of private equity firms this year has brought them more M&A work. “Overall, we haven’t seen a slowdown, but we have seen a change in type of work. We’ve seen an increase in middle market M&A activity in the last months,” says Tony Macvean, managing partner of Hall & Wilcox. He indicates that especially M&A transactions in the range of A$20–50m have increased in frequency.

 

Last year, the firm posted a revenue increase of 17% to A$21m and Macvean says the firm has seen fee income grow by 30% in the first nine months of the current financial year. The firm services both Victorian clients, including Bendigo Bank, APN Property Group and Coles (now owned by Wesfarmers), but also clients with roots outside the state, such as St George and Caltex Australia.

 

 

One way for mid-sized firms to gain market share is to compete on price. “According to the market information that comes to us, we are [priced] well under our peers,” says Macvean. The firm is also looking at models for billing, other than time-based billing, and the partners attended a workshop in May to look at value pricing, event-fee pricing and fixed-fee pricing.

 

“We don’t like to compete on price, but in an economic downturn we don’t think it’s smart to raise hourly fees,” says John Nerurker. The firm charges an average rate of A$450 an hour for partners in the corporate practice. “It’s my feeling that that’s a little bit less than other commercial firms,” says Nerurker.

 

He says clients increasingly ask critical questions about the bills they receive. “For example, they say, rather than a partner doing this work, why can’t we have a senior associate and just a partner supervising it. Four or five years ago, that didn’t happen to the same degree. Then it was just, okay, here are the hourly rates and that’s what we are going to pay.”

 

Clients are also happier asking for discounts based upon volume work, while previously that didn’t happen to the same extent, says Nerurker. “They also ask lawyers to share the risk on more speculative matters – that’s becoming more prevalent.”

 

To be able to charge a below market-average fee, Mills Oakley occupies more modest premises than might be expected from a commercial firm of their stature. “[Clients] see the marble walls when they walk through the door and the coffee machines going, and they know they are paying for that. Law firms need to recognise there is a balance between providing a comfortable and suitable working environment for their staff, but without going overboard and having a marble palace that your clients are going to balk at.”