Diversification, cut-throat pricing, more competition for government work: these are just some of the outcomes as New Zealand firms adjust to a new world order
There's a new flavour of the month in New Zealand. While firms are still keeping an eye on the M&A scene, what they would really like to talk about in 2009 is how much their practice does not rely on big corporate transactions. Diversity of practice areas has become the theme du jour - although firms point out that this diversity was present all along. "The big deals were the icing on the cake," says Russell McVeagh CEO Gary McDiarmid. "But we are highly diversified and have a very stable base of clients and practice areas."
Undoubtedly, firms who have built up genuine depth across a range of practice areas are now reaping the rewards for their investment. Chapman Tripp, Buddle Findlay and Kensington Swan are regarded as being particularly well placed in this respect. "We don't put our eggs in one basket," says Buddle Findlay national chairman Peter Chemis. "We have focused on building the size and quality of particular specialisations, such as insolvency, public law, health and environment. Other firms may have teams in these areas, but we believe the depth and quality of our client base in health, for example, is pre-eminent."
At Bell Gully, the feeling was that the firm had become "a little skinny", according to chairman Roger Partridge, so it moved last year to bring in six new partners in areas such as litigation, competition, resource management and energy. "Strengthening the team at a time of economic uncertainty was a significant achievement," he says.
Price war
As competition for work hots up, fees have become a key battleground. Cost may not have been a major issue in the boom times of recent years, but clients are increasingly squeezing firms for more value for money. It is not an easy transition for those that have become accustomed to the healthy fees associated with large M&A deals - particularly when tendering for government work. "In Wellington, margins are lower and clients are more price sensitive," said one source. "There were some firms that didn't take that into account in the past and billed the same in Wellington as they did in Auckland. Now that the big corporate transactions work has slowed down, they're going to have to battle to find work in other areas." The result, says the source, is some firms "ruthlessly cutting their own throats" when tendering for work.
Kensington Swan chairman Clayton Kimpton says that tendering for government work has become more competitive. However, he adds that his firm has not lost any work to rival firms through the tender process - rather, the firm's tender success rate has increased. "You don't just walk in and get the work - you need to have been there, built relationships with central government, and developed a deep understanding of the relevant industry, business and environment. This is why Kensington Swan is one of the few large firms to continue to invest in its Wellington office," Kimpton says. He believes a strong Wellington office is essential to building relationships, although he says that local and regional government work is also extremely important.
However, it is not just government work where firms are jostling for position. Chapman Tripp's Andrew Poole says he has heard of "very unusual" pricing across the entire industry. "I can only surmise that this is a reflection of overcapacity and a need to secure revenue," he says. Poole suspects this overcapacity may be linked to the promotion of salaried partners which occurred in prosperous years at some firms. "It may have been a smart thing to do in boom times, but it would presumably put pressure on the firm when times are lean," he says. Whatever the reason, Poole says the cut-throat pricing is unsustainable. "The firms involved are doing damage to themselves in the long term. When the recovery comes, it will be difficult to raise those rates back to previous levels."
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