1. Keyhouse Autumn Seminar 2012 Looking Forward David Rowe Managing Director, Outsource

2. Observations
2005 to 2009 was a false place, boom driven conveyancing led to huge volumes, good pricing and high profits
2012 is a false place too, no transactional work, oversupply of solicitors to work available and survival becoming the buzz word
This place will end, transactions will return at current pricing levels and a new leaner business model will be necessary to perform well.
The recovery phase has just commenced, but will be slow and gradual. Definitely more conveyancing in Dublin now.

3. Where are we? 5th year of declining income/profitability
Have gone from the best of times to a very challenging environment
No change in current conditions vs. 18 months ago but firms/individuals may have used up reserves i.e. cash running out
Partners see getting a good salary as a result
Getting paid by clients an issue
Cashflow management now an issue driven by banks, non paying clients and drawings requirements

4. Where are we now?

5. The Market – by practice area
Where are the opportunities:
Commercial litigation
Corporate restructuring
Insolvency/Debt Collection
Employment law
Family law
Crime
Regulatory / professional indemnity
Defence and plaintiff personal injury litigation
Commercial deals (small transactions only)
Estate planning / Wealth management / Probate
Limited commercial and residential conveyancing – now leases

6. The Market – by practice area continued
There is still work in the following areas but less of it:
Company Commercial
Banking
Commercial Conveyancing
Residential Conveyancing
Dilemma of resources in these areas common

7. The Market – Implications
Firms have changed radically over the past 3 years, those actively repositioning doing the best.
Repositioning/re-investing mean actively re-orientating the firm to the areas still active while keeping contacts where markets are quiet.
Firms now have to look all options – sell, merge, buy as the status quo may not be a viable option.

8. The Market – by firm size
Small firms – huge distress, main practice areas eroded (PI Litigation and Conveyancing) and Professional Indemnity Insurance uncertainties, many will fold their tents
Mid-size – income back by 20% to 25% typically. Very quick to react on the cost base and not as economy dependent as large firms (good litigation, probate, crime and some institutional / State work). Some badly hit – developer / banking practices

9. The Survival Guide
Recognise where we are – large fees not in the files anymore
Look after clients with high service levels
Bring your costs per hour down
Get the cash in, up front where necessary. Do not fund outlays
Consider a merger – will be right for some
Run your firm on the basis current conditions will last 12 to 18 months
Deeply embedded risk management essential

10. Growth Options Internal External
Organic growth, focused on the areas where there is work and emergency areas.
External
Buy files
Buy a practice
Merge

11. Trends in Buying and Selling Practices
Where the market is now:
Many less attractive practices are difficult to sell, some are just winding up
Buyers are expecting to pay within the following ranges:
40% to 75% of annual turnover or
Twice profits after allowing for a salary for the owner
Work in progress plus a small goodwill payment
Strong firms and niche firms still achieve a premium.

12. Trends in Buying and Selling Practices
Other features of the current market
Vendor asked to deal with surplus staff, premises issues
The level of due diligence/care taken by buyers has increased
Buyers are concentrating on the level of continuing work
Once off cases are often factored out is arriving at a value
Files rather than practice often purchased now

13. Why Merge?
Why merge?
Enhance the firm’s competitive position in one or more of its existing markets
Fill gaps in expertise and increase specialisation
Add complementary practices or services
Increase or diversify the client base, attracting clients neither firm would attract on its own
Solidify relationships with clients common to both firms
Succession planning / age profile
Economies of scale

14. Why Not? Poor reasons to merge To resolve internal structural problems
To get bigger
To fill vacant space
To replace a marketing plan
To follow a trend
To deal with underperforming partners
To solve cashflow problems

15. What makes a successful merger
It is the result of a plan, not a reaction
23 out of 25 mergers we have been involved in have worked, 2 have not

16. Practical Tips/Observations
In good mergers firms are not the same
Financials only part of the assessment but helpful if within a 15% range
Energy/organisation/growth record/age profile/client base the keys
Cost savings = 10% + - not a reason in itself to merge
Matching ambition vital
Good mergers become obvious during the process
Significant jumps taken in 1 merger – may take 5 years organically
Don’t merge if you won’t adapt

17. The Future of the Sole Practitioner
Increasingly difficult – why?
Increased regulation of Risk Management
Lack of economies of scale
Breadth of practice areas to cover
Isolation/loneliness
Lack of work
Management is more demanding- doesn’t sit easily with many
Is there a future – yes with certain dynamics

18. The Future of the Sole Practitioner
Good catchment area
Known for something
Type of work (specialism)
Service levels
Getting results for clients
Visible and connected
Tight running costs
Established firm – income €150K, costs €80K, profit €70K
New firm – income €80K, costs €35K, profit €55K

19. The Future of the Sole Practitioner
Good Risk Management, preferably confirmed by external accreditation
Competent across all chose practice areas, better than competent in a couple
Financial awareness
Appropriate technology, systems and precedents
Ability to cope with isolation and stay driven and focused
Competent and motivated support

20. Overhead Sharing Will become a more commonplace arrangement
Share facilities, staff, equipment
Keep own fee income, PII record
Works well provided a fair and flexible structure worked out
Ideal for those looking to reduce costs, not making a living on their own, need but cannot afford back up, find the isolation of sole practitioner difficult but are not comfortable with partnership

21. Conclusions Help available – Practice Advisory Service.
We must look forward, the meltdown is over and we are in slow recovery.
The Legal Services Regulation Bill presents both threats and opportunities.
The current phase of lower fees, lower expenses and lower profits as a result of oversupply of solicitors to the work available will improve, but slowly.
Time to think outside the box, buying, selling or merging now possible.
We are at the bottom of the cycle, starting to recover. Non-contentious work will return, increased fee pressure on contentious work.
Help available – Practice Advisory Service.

22. For further information contact:
David Rowe
Managing Director
Outsource
Ph: