A surging private equity market, the City’s first $10m lateral and two law firms passing the $3bn mark. At first glance, 2017 looks to have been another boom year for international players in London. Neither did it hurt that City practices in a significant number of cases outpaced firm-wide revenue growth at many prominent US brands, including Latham & Watkins, White & Case, Paul Hastings, Sidley Austin, Cooley and Milbank, Tweed, Hadley & McCloy.
Tragically for legal reporters, the story is a little more nuanced as a whole. Lawyer numbers at the 50 firms that make up our Global London table certainly reached new heights in 2017 at 6,212 but are up overall by a steady rather than spectacular 3%.
Overall, the advance of foreign advisers in London has slowed somewhat – even allowing for the inclusion of Dentons and Squire Patton Boggs in the table for the first time back in 2015, which bumped up that year’s growth rates.
And beneath the headline figures, the diverging fortunes are stark indeed. On one hand, through trial, error and a decade of ultra-expensive recruitment, a select group of firms are moving away from the vast majority of US-bred peers to mount a potent direct challenge to City rivals. US firms are comfortably generating over $5bn in London, a significant chunk of the high-end City market.
And there are now three global firms with over 400 lawyers in the City, with Dentons and Baker McKenzie joining White & Case this year. Two of the ten largest foreign firms saw a double-digit percentage increase in their lawyers. None of those in the top ten saw a similar jump one year ago. Most notably, Kirkland & Ellis and Latham hiked headcount by 27% and 15% respectively. Proportionately, Greenberg Traurig was the fastest mover, growing its headcount 85% to 87 fee-earners largely as a result of shipping in six partners and their teams from the imploding local arm of King & Wood Mallesons (KWM).
Yet, at the other end of the spectrum, a substantial number of firms are shrinking their ranks. Four in the top 50 saw double-digit percentage falls, against two in 2016. These include some outfits that have experienced dramatic growth in recent years such as Ropes & Gray and Simpson Thacher & Bartlett – surprising given both firms’ prominence in humming leveraged finance markets. Another 15 recorded modest staffing decreases.
In the middle, a third group of firms includes those previously aggressively expanding their ranks that are now reaching maturity, with 19 having flat or single-digit headcount percentage growth. They count White & Case, which despite still being the largest office in the pack and having grown 47% since 2012, halted its dash for the 500-lawyer mark through 2017 to keep headcount flat at 446.
Overall, partner numbers expanded by 3% to 1,721, considerably firmer than last year when the same figure edged up just 0.5%, but slower than in many post-Lehman years.
‘Along with New York, London is the central focus of our strategy and we’ll continue to focus on it.’
Richard Trobman, Latham & Watkins
Partner recruitment at the top 50 international firms was also 24% down on last year, although a substantial chunk of the 190 partner hires in 2016 were due to the KWM exodus. The 145 hires in 2017 is still up on 2015, when global firms recruited 122 partners. Overall, lateral recruitment has remained robust. This is despite many firms achieving the maturity to have large trainee programmes and to promote plenty of their own partners.
Overall the number of partner promotions grew from 76 to 82, mostly due to Kirkland’s striking promotion round, globally one of the largest ever from a law firm. Of the Chicago-bred firm’s 97 new partners, 13 were minted in the Square Mile, more than double the previous year’s six. (Kirkland has an unusual ‘tournament’ approach in that it makes up large numbers of salaried partners to give them a shot at its tightly-held equity ranks.) The firm making the largest City round in 2016, White & Case, promoted seven in 2017.
Meanwhile, the number of English-qualified lawyers in the top 50 has grown 7% to 5,071 or 82% of the total. Bucking a trend in recent years that saw their numbers sharply increasing, foreign-qualified lawyers are down 13% to 1,119 after reaching a record 1,286 in 2016.
The increase in foreign – primarily US – qualified-lawyers in previous years was largely attributed to demand for New York law advice in deal finance and capital markets work by European borrowers tapping US investors. Conversely, this year’s fall reflects that some of the largest US players are focusing increasingly on contentious work requiring English law capability. Such is the case for Latham, which added 40 English-qualified fee-earners to its ranks.
‘The London market seems to be breaking down into betters and those who play the investment game. We play the investment game and that’s going to be the winner.’
Tamara Box, Reed Smith
‘There is a growing interest among a number of US firms to grow their litigation capabilities,’ observes Seamus Hoar, partner at legal search firm Major, Lindsey & Africa (MLA). ‘Financial services, regulatory and white-collar crime are also interesting to firms. So are life sciences, IP and data privacy. We will probably see some finance hires. What that tells you is that it is still a very healthy lateral market.’
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If overall those making up our table can be divided into expansive, conservative and shrinking firms, members of all camps are to be found in the upper reaches of the table.
In this group it is clear that Kirkland, Latham and White & Case are firmly established as the pace-setters for US firms in London. Of the three, it was Kirkland that made the most dramatic progress in 2017 with a string of marquee hires and mandates.
Jumping from ninth to the sixth-largest foreign practice in staff size, Kirkland made its City ambitions abundantly clear by boosting its headcount 27% to 237, the second-largest increase in the whole Global London table and the strongest among the practices with more than 100 lawyers. With Kirkland on course to become the world’s largest law firm in revenue terms after sustaining dramatic growth for 20 years and a robust 2017, the US juggernaut looks certain to keep shaking up the City.
And it was not just its headline-grabbing $10m package for Freshfields Bruckhaus Deringer’s David Higgins that turned heads – Kirkland tapped Freshfields in two other instances in 2017, for finance partner Jonathan Birks and restructuring partner Sean Lacey, two well-regarded operators expected to make an impact. Partner headcount increased 25% to 86 in 2017, as the firm also hired two from Ropes. (The $10m package for Higgins may have set a record for a lateral but there are better-paid partners in US firms’ London arms. One arbitrator in London is reputed to have been paid considerably north of that figure.)
Latham’s London practice outpaced global performance as it became the first law firm to report revenues over $3bn. While globally the firm hiked revenues 8.5% to $3.06bn, its London practice posted a double-digit percentage income growth and broke the $300m mark. ‘Along with New York, London is the central focus of our strategy and we’ll continue to focus on it,’ says co-vice-chair Richard Trobman.
Benchmark clients like The Blackstone Group and CVC Capital Partners kept the firm’s private equity team active throughout the year. Partner David Walker led the team acting on the £3bn acquisition of UK online payment company Paysafe.
‘London is the financial centre of our European work. We don’t see Brexit as something that is materially going to change the way we operate.’
Ronan O’Sullivan, Paul Hastings
Headcount is now approaching 400 lawyers after growing 15% to 378 in 2017 and 57% over the last five years. Latham scooped six headline lateral deals in 2017, including continuing its push outside its transactional heartlands into disputes by recruiting from litigation leader Quinn Emanuel Urquhart & Sullivan. Latham also saw two of its arbitrators awarded silk in the latest silk round, Sophie Lamb and Philip Clifford.
Still, partner headcount in the City was down by two to 74, amid some prominent departures, including City disputes chair Simon Bushell for Signature Litigation and investment funds co-head Tom Alabaster for Linklaters. Latham also remains relatively conservative on City growth: for the second year in a row only two associates were promoted in the City, amid a 31-strong global promotion round.
But with Trobman promising that the firm has ‘only just started’, the number of trainees at Latham has seen sustained growth, rising from 41 in 2016 to 46 in 2017 through to 49 in 2018.
Other firms in the top ten were more restrained in headcount expansion in 2017. Still the largest UK office in the US pack, a traditionally expansive White & Case saw headcount flat at 446. But it was another successful year for the practice financially as it grew its top line 13% to $328m, outpacing the firm’s 10% global growth to $1.8bn. (For more details on White & Case, see our cover feature.)
Reed Smith’s City base also kept a flat headcount at 366. ‘The London market seems to be breaking down into betters and those who play the investment game,’ says Europe and Middle East managing partner Tamara Box. ‘We play the investment game, not the betting game. And that’s going to be the winner.’
Reed Smith’s London arm – its largest office – posted a strong performance in a rebound year. City revenues increased 14% in sterling terms to £147m, while globally the firm grew its top line 4% to $1.12bn.
Zone three
One of the firms seeing a sharp headcount decrease among the top ten is Mayer Brown, due to a number of partner departures to firms including Kennedys and Gibson, Dunn & Crutcher. The firm’s headcount has dropped 18% over the last five years and 6% in 2017 to 230 – falling from sixth to the seventh-largest office. It is hard to see how the takeover of Rowe & Maw way back in 2002 has been built upon.
However, newly-elected London senior partner Sally Davies insists the falling numbers do not signal retrenchment: ‘We are not trying to contract in any way.’ She points to the hire of Neil Evans in the private equity team from Simpson Thacher and promises more in the pipeline.
This follows a quiet 2017 on the London lateral market for Mayer Brown. ‘2016 was a bit more challenging, with Brexit everyone was super cautious and looking for stability,’ says Davies. ‘But we have had an incredibly strong 2017.’
‘We talk with our clients a lot about where they want us in light of Brexit and we see London as a place we will invest significantly.’
Mary Kuusisto, Proskauer Rose
Globally the firm grew revenue 4% to $1.31bn. It does not disclose London figures, but partners claim the office outpaced global growth increasing both revenue and profits by double digits. The London team acted on headline deals for two of London’s landmark buildings, the £1.3bn purchase of the Walkie Talkie by Hong Kong investors LKK Health Products, and the £1.15bn acquisition of the Cheesegrater by Chinese investment group CC Land.
‘Along with the Chicago office, the connection of London, New York and Hong Kong is part of the backbone of the firm, one of the things that positions us very well,’ says real estate partner and management committee member Jeremy Clay. ‘We have 200+ lawyers in each of them. Not many firms have that and we need to work hard at continuing to develop this.’
The firm is looking at growing its private equity practice, focusing on increasing volume in its mid-market value deals.
Meanwhile, Shearman & Sterling’s London headcount dipped 7% to 178 following a flat financial year for the firm both globally and in the City. Headcount grew by only 1.5% to 853 globally. The neutral observer must conclude that the long-term drift for the firm that many considered the strongest US player in Europe in the early-2000s has yet to be arrested.
‘We are focusing on the profitability of our practice, not the size,’ says newly-elected senior partner David Beveridge. More significantly, Shearman now looks at growing disproportionately in the US, focusing on corporate work. ‘London will also continue to grow,’ says Beveridge. ‘It will just not grow at the same rate.’
Coming up
Notable movers are also to be found outside the top ten. Cleary Gottlieb Steen & Hamilton was in expansion mode throughout the year, swelling headcount 21% to 140. Most of the growth last year was at junior level: partner number was up by just one to 21. ‘We have a pure equity lockstep here. We don’t do many lateral hires, don’t get teams and don’t promise people above-lockstep deals,’ notes corporate partner Tihir Sarkar.
The firm did, however, expand its roster of high-quality litigators, bringing in Herbert Smith Freehills’ Royal Bank of Scotland (RBS) point-man James Norris-Jones at the beginning of 2018.
Conversely, Ropes & Gray, which almost quadrupled the size of its London practice over the previous five years, had a turbulent year, with a run of partner departures seeing its ranks shrink by 13% to 125 and its City partnership by 20% to 27. Kirkland, Watson Farley & Williams, King & Spalding, Linklaters, White & Case and Dechert recruited partners from the firm.
Finance partner Mike Goetz says Ropes will fill the spaces people have left, both through organic growth and laterals. Tensions in the office amid closer oversight by its US practice have led many to claim Ropes faces serious issues, though it should be remembered that the firm has been one of the most striking successes in the US over the last ten years. The biggest challenge facing Ropes now is not stabilising London but that Kirkland ominously launched in its Boston backyard in 2017. Anything that disrupts its domestic momentum will inevitably feed through to the UK.
Elsewhere, Simpson Thacher was among those that shrank the most during the year. While the firm more than doubled its ranks over the previous five years, in 2017 it dipped back below the 100-lawyer mark after a 21% drop in its headcount to 92.
Simpson Thacher City managing partner Jason Glover says the firm recruited too many associates in 2016, ‘thinking the churn rate would be higher’: ‘[In 2017] we didn’t replace people who left.’
Nevertheless, Simpson Thacher’s London base had another stellar year, growing revenue to $168m, a 16% increase on 2016 and more than four times the 2009 revenue of $36m. The New York firm’s superb reputation in the US private equity, funds and leveraged finance markets has positioned it strongly for the booming activity levels among sponsors.
‘We have deliberately a small group of clients,’ says Glover, pointing to a lucrative client base including Blackstone, KKR and Apax as well as new clients Triton and Aston Martin, which it last year advised on a high-yield bond. The firm recently advised Blackstone on its €12.2bn sale of Logicor to CIC and KKR on its £6bn acquisition of Unilever’s spreads business.
In contrast, UK firms are wrestling not only with the post-Brexit weaknesses in sterling that hands even more buying power to US rivals but a relative lack of work from core domestic clients. ‘The big issue for the Magic Circle is that FTSE 100 companies are not doing much,’ notes Cleary’s Sarkar.
London calling
Despite numbers telling of a growing divide, the mood in more than 30 interviews for this piece is convincingly upbeat. Partners speak of a busy second half of the year which led up to an even pacier start to 2018. ‘There is a high volume of private equity deals and a lot of reasons why a US firm would add value,’ argues Sarkar.
‘Have you seen the stock market prices over the last few days? Yes, we are confident!’
James Roome, Akin Gump
And a looming Brexit does not yet worry US players much, even as the talks between the UK and Brussels meander along apparently with little consensus or productive result. ‘London is the financial centre of our European work,’ says Paul Hastings’ City chair Ronan O’Sullivan. ‘We don’t see Brexit as something that is materially going to change the way we operate.’
Proskauer Rose’s City head Mary Kuusisto agrees: ‘We talk with our clients a lot about where they want us to be, especially in light of Brexit, and right now we see London as a place where we will continue to invest quite significantly.’
And even in what was seen as a stable rather than bumper year for City disputes, litigation leader Quinn Emanuel chalked up a dramatic surge in revenue, pushing up UK income a startling 61% from £44.8m to £71.9m.
With US firms increasingly well positioned in leveraged finance, disputes and funds, another core area looks set to power their City arms through 2018, the long-predicted return in restructuring and insolvency work hitting a struggling high street. Firms like Kirkland, Paul Hastings and Akin Gump Strauss Hauer & Feld have already secured a string of notable restructuring jobs this year.
‘Have you seen the stock market prices over the last few days?’ asks Akin Gump insolvency veteran James Roome. ‘Yes, we are confident! In a smaller office you get a feel for what’s going on – how busy everyone is. There will be quite a number of situations – rates are going up. Funds work will also increase because of that.’
Ten years since the banking crisis started, headcount at US firms in the City has grown almost 50%. US firms are now an established force in the British legal market. And, with Latham, Kirkland and White & Case all broadening their M&A platforms, it looks certain that 2018 will see further inroads into general corporate work – the only major product line to elude their efforts so far.
Milbank’s Julian Stait sums up the generally bullish mood: ‘Elite US firms in London are now regarded as top practices in their own right. We have a lot of people who do not want to be one of 60 trainee solicitors at a Magic Circle firm and make a very informed decision about their future career and the type of training they want.’
While City rivals remain fond of dwelling on the large group of US firms that are always promising more than they deliver, they would do better to focus on the significant camp closing the deal. LB
marco.cillario@legalease.co.uk
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