Sparke Strang? Sparke Helmore and Kemp Strang Merger Rumours

We received the following anonymous tip-off from a Kemp Strang Spy last week:

Rumour continues to circulate around the office at Kemp Strang that an announcement is expected this month in relation to a merger with Sparke Helmore. It is common knowledge that the KS board has met with that of SH on a number of occasions. Further, a number of key equity partners are said to be leaving at years end and there are reports the partners are at odds over merge. Despite the partners acknowledging they are aware of the merger ‘rumour’ via a poorly drafted email to staff – it is clear all is not well at KS.

Sparke Helmore has offices in Melbourne, Adelaide, Brisbane, Sydney, Newcastle, Perth and in the Upper Hunter, with a total of over 50 partners. Kemp Strang is a “member of the Kennedy Strang Legal Group”, which comprises Kemp Strang (Sydney), Russell Kennedy (Melbourne), Thynne & Macartney (Brisbane) and Lynch Meyer (Adelaide). Presumably a merger with Sparke Helmore would herald the end of the very fancily named “Kemp Strang Legal Group”.

Kemp Strang would make a valuable addition to Spark Helmore in that it will precisely double its Sydney-based partnership offering. Both firms have 21 Sydney-based partners.

The Sydney mid-tier market has experienced considerable growth over the last two financial years (in contrast to the top-tier of the same market), and a 40-strong partnership offering in the region would see a “Sparke Strang” able to compete with the likes of Corrs Chambers Wesgarth (45 Sydney-based partners) and Norton Rose (55 Sydney-based partners) for work in the lucrative Sydney mid-tier legal market.

According to the AFR Partnership Survey, Sparke Helmore’s national partnership size reduced slightly in FY 2009/2010 compared with FY 2008/2009, moving to 51 from 57. Similarly, the Kennedy Strang Legal Group reduced slightly in size, moving to 71 from 72 (although the firm only provided figures from Jan 10 – June 10, and it is unclear whether this loss came from Kemp Strang). Also according to the AFR Partnership Survey, the firms have considerably disparate leverage ratios: Sparke Helmore has 22.4% of partners as its total percentage of fee earners, while Kennedy Strange as a flatter structure at 37.7% (again, it is unclear if Kemp Strang is more closely aligned with Sparke Helmore in this regard).

Sparke Helmore clocked in at number 444 in the BRW Top 500 Private Companies with revenue of just over $100 million. This represented a decline of -6.8%. Headcount dropped by -7% too (reinforcing the perception that the firm has the utmost willingness to slice and dice when profit levels are cast into doubt – the firm’s revenue soared last financial year after a comparatively massive round of redundancies).

The Kennedy Strang Legal Group came in at number 430 in the BRW Top 500 Private Companies with revenue of $105 million. This represented growth of +6.3% on FY 2008/2009. It is unclear how much of this result can be attributable to the group’s Sydney offering.

At a time when the top-tier is almost exclusively experiencing reduced revenue, the high-end mid-tier appears largely impervious to still-sluggish post-GFC legal market. Corrs Chambers Wesgarth reported revenue of of $234m last financial year; a drop of -0.6%, while Norton Rose remained steady at $200m and Gadens surged by over 9% to $160.3m. If the Strange Sparke can compete with these firms in Sydney, perhaps it too will enjoy a similar degree market immunity.

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