The strain of macroeconomic conditions on UK firms is starting to show, as the immediate impact of last year’s Brexit vote meant many firms experienced a slow summer and a dip in confidence that carried on for many until the end of 2016 and even into the new year with the triggering of article 50 in March.
This uncertainty is reflected in some individual and regional results for this year’s Legal Business 100 (LB100). However, overall figures look strong. There are 31 non-City firms in the 51-100 bracket, compared to 19 London firms, with a combined revenue of £1.26bn, up 11% on last year’s £1.14bn. The number of regional firms in the bottom 50 has increased by one: a new entrant comes in the form of Scots insurance litigation firm Digby Brown, which has total revenues of £27.3m, while national firm Thompsons has dropped a few places this year to enter the bottom half of the table.
Average revenue for the regional group is up 7%, from £38m to £40.8m, ahead of the average income of the City and boutique firms in the second 50. However, typically regional firms remain less profitable than their London counterparts. Revenue per lawyer (RPL) stands at £196,000, compared to £257,000 for the London firms and profit per lawyer is £42,000 compared to £72,000 for those in the City. Profit per equity partner (PEP) is also significantly lower at £331,000 – although up a fraction on last year’s average – compared to £366,000 for the London-based firms.
Tough in the north
It has been a hard year for the Scottish firms. According to management at leading independents, general business confidence in the region was more affected than the rest of the UK due to the additional uncertainty of a second referendum on independence, which seems to have abated following June’s election and a poor result for the Scottish National Party.
‘The North East is the smallest region. If the South East catches a cold, the North East catches pneumonia. In those circumstances we have done well.’ Jamie Martin, Ward Hadaway
‘There was a bit of referenda fatigue in Scotland,’ says Burness Paull’s chair Philip Rodney. ‘We did a survey of a large section of our clients earlier in the year and they said they could get on with Brexit, but what was worrying them was Indyref2. Of course, following on from the election, the likelihood is that is off the table for the immediate future.’
The best performance came again from Brodies, Scotland’s biggest independent, although by its own high standards it has been a muted year. Revenue increased by 2% to £66.7m, while PEP dropped 2% to £585,000. Last year the firm had a much stronger year, increasing both revenues and PEP by 12%.
‘We have had periods of double-digit growth, we have had periods of slightly more subdued growth,’ reflects Brodies managing partner Bill Drummond. ‘Having regard to the market circumstances, we felt that the business and our clients reacted very well and the mood of the partnership was that in terms of business performance it was a very satisfactory year, bearing in mind that the vast majority of our earnings are in sterling and depend on client activity in the UK.’
Brodies’ main independent rival, Burness Paull, had a virtually flat year with revenues of £53.8m, while Shepherd and Wedderburn is down the most in the group following years of growth after its 2014 acquisition of Tods Murray. Revenues at the firm were down 5% to £50.5m, while similarly PEP was down 7% to £349,000. ‘It has been a year of differences really,’ says chief executive Stephen Gibb. ‘From the turn of this calendar year onwards we have seen things pick up a lot, and we are currently sitting 10% ahead of where we were this time last year and have got a lot of areas which are very busy. Immediately post the Brexit referendum, the Scottish market was affected more strongly than some of the other markets.’
Another of Shepherd’s main independent rivals has been consumed by a larger international firm. Having struggled over the last few years – with the worst five-year revenue performance of any regional firm – Maclay Murray & Spens will follow the path trodden by McGrigors and Dundas & Wilson and succumb to a rival when its takeover by the world’s largest firm by headcount, Dentons, takes effect later this year. Maclay’s turnover was slightly down to £44.2m from £44.8m, while PEP was down 7% from £244,000 to £228,000.
‘There was a bit of referenda fatigue in Scotland. Our clients said they could get on with Brexit, but what was worrying them was Indyref2.’
Philip Rodney, Burness Paull
Elsewhere, the picture is bleaker for firms based in the north east of England, which is traditionally a tough market. ‘The North East is the smallest region of the country,’ says Jamie Martin, managing partner of Ward Hadaway. ‘It is nothing out of the ordinary. If the South East catches a cold, the North East catches pneumonia. It is as simple as that. In those circumstances I think we have done well.’
Ward Hadaway had a difficult year, with PEP down 16% to £282,000, against flat turnover of £35.8m. According to Martin, there were challenging conditions for corporate in the North East, although it performed well in the North West and Yorkshire. ‘General commercial was down slightly, but every other part of the business was slightly up.’
Leeds firm Walker Morris also saw revenues dip 2% to £41.5m, although PEP was up 4% to £416,000. There was a similar story at Liverpool’s Brabners, which saw revenue dip 3% to £29m, but PEP soar 22% to £204,000. This can be attributed, at least in part, to the fact that the firm saw a decrease in equity partners – from 30 to 25. However, going against the trend, Wilkin Chapman in Grimsby had a standout year, with revenues increasing 7% to £22.8m, while PEP jumped 29% to £347,000.
Southern climes
It is a different story further south, with more strong performances from individual firms. Geldards – based in Cardiff – had a favourable year, with a solid increase in revenue of 7% to £24m, despite a 13% drop in headcount. Likewise, Birketts saw a jump of 8% to £42.3m, although headcount is up 13%. Geldards also saw a double digit increase in PEP, up 16% to £253,000.
In the South West, there is a more mixed offering. The yo-yo effect continues at Bristol’s Clarke Willmott, with turnover down 2% to £43.2m, while PEP fell 18% to £186,000. Last year the firm posted double-digit growth, with revenue up 10% to £43.9m and PEP up 14% to £228,000. Meanwhile, Exeter’s Foot Anstey continues its strong run of recent years, with revenue increasing 7% to £38.3m, although PEP stayed flat at £313,000.
‘When it comes to the South West, or the south of the country – the economy in the last year has been incredibly buoyant,’ says Foot Anstey managing partner John Westwell. ‘Most of the firms that rely on that geography in terms of the economy and clients have seen growth between five and ten per cent on the top line. It has been a reasonable picture for them.’
According to Westwell, there was double-digit growth for the firm across a number of practice areas, with banking and financial services up 15%, media and technology up 12%, and property, infrastructure and construction up 13%. ‘Another area which has been strong in particular was energy, and certainly the renewables are very strong at the moment in the South West.’
‘We have seen things pick up. Immediately post the Brexit referendum, the Scottish market was affected more strongly than other markets.’
Stephen Gibb, Shepherd and Wedderburn
Bristol-based Bevan Brittan had a slightly more subdued 12 months than the financial year 2015/16, with revenue increasing 3% to £39m, while PEP was up 4% to £317,000. Last year the firm saw revenue growth of 8%, while PEP was up 6%.
‘We have had a successful 12 months, with continuing revenue growth for the fifth year in succession and continuing to grow profits,’ says the firm’s managing partner Duncan Weir. ‘We are now benefiting from a clear strategy to broaden our markets and range of clients; to continue to invest in our teams; new hires; new technology; and the opening of our Leeds office.’
Other firms in the South West have seen revenues boosted by mergers. Withy King has seen its revenues jump 28% to £31.3m following the acquisition of Royds in London, while Veale Wasbrough Vizards has posted a revenue increase of 13% to £32.3m – although much of that can be attributed to the acquisition of a chunk of Watford-based Matthew Arnold & Baldwin in 2016.
In the South East, Moore Blatch’s revenue increased by 10% to £24.3m, while PEP was up 8% to £550,000. The firm did have a 19% jump in headcount, but the number of equity partners stayed the same. Another South-East stalwart and a consistently strong performer, Stevens & Bolton, had a tougher year, increasing its top line by 6% to £24.7m, however PEP dropped 11% to £326,000. In Sussex, DMH Stallard increased its revenues by 2% to £24.9m, but also saw PEP fall significantly.
Looking at the regionals in the bottom 50 of the LB100, those in the north of the country, particularly Scotland, have been hit harder by the political and economic uncertainty caused by last year’s Brexit referendum.
But, as Gibb concludes, it is still business as usual for most firms. ‘People are rolling up their sleeves. The second half of the calendar year there was a slowdown but now firms and business are just getting on with it.’ LB
kathryn.mccann@legalease.co.uk
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