Global London Overview: Power plays

Had Legal Business’ Global London report come out at the end of 2021, a familiar narrative would have played out. The story would have been one of diverging fortunes as the London practices of some foreign firms looked to further strengthen their operations off the back of a booming transactional market, while others struggled to keep their head above water amid the fallout of a coronavirus pandemic that put both operational practices and client relationships to the test.

Last year of course, even the most sceptical of market commentators could scarcely have predicted the fresh disaster of Russia’s invasion of Ukraine. As the conflict casts a long shadow over all areas of life in 2022, the legal sector is no exception. Many of the top 50 Global London firms have responded by closing their Moscow offices and market sentiment, aside from dismay as events unfold, is that the full impact of the crisis is far from being fully felt for firms and clients alike.

Whatever reversals this year brings, it cannot detract from a 2021 characterised by rejuvenation. If 2020 saw the market remain somewhat static, 2021 was driven by a desire to make up for lost time. A flurry of lateral hiring saw headcount increase by the greatest margin since 2018, a 5% rise from 7,460 in 2020 to 7,853, as the industry reacted to a market that had made it clear it would no longer let the practical difficulties caused by Covid stand in its way.

Despite the increase in raw numbers, partner hires reflect a market that continues to grow into maturity. Though the 150 partner additions show an increase of 39% on the anomalous 2020, the figure is actually down on the 156 hires made in 2019, suggesting a pivoting in strategy by firms content with their senior talent and now focusing on progressing the next generation internally.

As the war for talent continues to be waged amid startling NQ salary hikes (see box, below), the focus is now shifting from bringing in star performers to developing the pipeline of budding superstars.

Indeed, there is market consensus that organic growth is key to a sustainable practice, and a mark of an office’s success. As Stephen Kensell, managing partner of Latham & Watkins’ City office, notes: ‘Lateral hiring is a very important part of our success, but we are equally focused on growing our own people and the best evidence of that came last year when we promoted a number of people to the partnership who were trainees at the firm. That to me is the mark of an office that’s coming of age.’

As important as it is to be competitive in the recruitment market, firms must not lose sight of the all-important client relationships. Jane Rogers, Ropes & Gray’s interim London managing partner (while Will Rosen is on secondment in-house at client Bain Capital), argues there is more to building out a law firm than adding zeros to payslips: ‘Firms have been actively recruiting associates in the market. They feel they need to be at a certain level in the war for talent, but equally important is how you service clients and maintain your culture.’

Unsurprisingly, given the transactional boom that epitomised 2021, the corporate and finance practice areas were the major drivers of hiring among the Global London top 50. Corporate was the most prolific area of lateral expansion, with 53 partners making moves as demand skyrocketed.

PE power

While the level of corporate arrivals was arguably inevitable given the proliferation of deals, it also played into the strategies of US firms with a stronger hand than many UK counterparts.

‘One of the first initiatives I focused on when I took over as managing partner last year was really to strengthen the transactional section of our London office,’ says Barbara Becker, chair and managing partner of Gibson Dunn. ‘We have added seven private equity partners, all of whom were loosely related to each other and to a client – well many clients, but in particular, KKR.’

That private equity remains a predominantly US-led business line almost goes without saying: the top five global houses all have their headquarters stateside; and US firms have had a headstart on their UK contemporaries in establishing client relationships. As such, many of the firms that outperformed in the Global London report have built their success on those existing client relationships.

‘Firms have been actively recruiting associates in the market. But equally important is how you service clients and maintain your culture.’
Jane Rogers, Ropes & Gray

Asserts Jason Glover, managing partner of Simpson Thacher’s London office, an outpost that saw a 40% surge in headcount over the last year: ‘US firms have tended to focus their efforts around corporate finance and in particular private equity. And the ones who are strong in private equity have tended to be the ones to benefit. This is partly because private equity as an industry has done phenomenally well over the last 10-20 years, but I think it’s a little bit more than that. It’s where firms can provide a value-add service. Private equity throws up a lot of opportunities to use your business expertise, your business acumen and your experience in a way that is beneficial for your clients. That’s really where the growth for a lot of US firms has come from.’

Sidley, whose modest 8% year-on-year headcount growth continues a sustained trajectory that has seen the London office grow by 24% since 2016, is another practice that attributes much of its success to bullish private equity activity.

Tom Thesing, London managing partner, is upbeat: ‘If you look at our growth over the last year, while it was broad across the office, the biggest portion of growth came on the private equity side. Our work for clients like Apollo, most recently on its acquisition of Miller Homes, is certainly validation of our continued expansion of the private equity team and our ability to capitalise on more opportunities for our clients.’

Paul Weiss has a similar story to tell. Despite not practising UK law, the Wall Street leader had a strong year, which office head Alvaro Membrillera puts down to this deal focus: ‘The London office has performed very, very well. Maybe even better than the previous three or four years. But I think the reason is private equity. Our London office is extremely focused on private equity. Private equity has had a few very good years and last year was probably one of the best.’

Given 2021’s exceptional level of activity, the question of what comes next is unavoidable. Will a PE focus continue to pay off?

Practice heads are broadly sanguine, citing the usual abundant supply of dry powder, while conceding that recent frothy levels of activity may be hard to maintain. As Membrillera notes: ‘It’s hard to tell if 2022 will be as successful as 2021. Frankly, we would welcome a bit of a breather. So far activity levels are high in 2022, but slightly lower than in 2021.’

‘US firms, including ourselves, have demonstrated to the market that we’re not just a viable alternative to the UK firms, we are potentially even leaders in many of the areas where we focus our business.’ Tom Thesing, Sidley

Law firm leaders are notorious for their disinclination to crystal ball-gaze, with recent years proving that the market tends to be a law unto itself. Pranav Trivedi, head of Skadden’s London office, sums up the consensus: ‘Our corporate practice has been extraordinarily busy. If somebody had said to me in March 2020 that over the next 24 months there would be a corporate boom, the likes of which you’ve never seen, I would have guffawed. It would have been incomprehensible to predict the kind of growth that has taken place.’

The leading pack

Even in such a banner year, some firms still strike out well ahead of the pack. Latham & Watkins usurped Baker McKenzie at the top of the table, recording a 12% increase in headcount since 2020 and a 63% jump since 2016, making it the most populous of the top 50 practices.

Latham’s success in London comes as its latest financials establish it as the first firm to surpass the $5bn global revenue mark and, with turnover now nudging $5.5bn, it did so in style. Furthermore, the London office is estimated to have seen a 30% spike to its top line compared to last year, taking its City revenue to around $700m.

Having been in the capital since 1990, Latham is well beyond establishing its presence in the market; it has arrived. It is a practice with deep roots experiencing sustainable and organic growth. Kensell is suitably pleased with the position the firm finds itself in, while still having one eye on further growth: ‘The office is well built now. We are entering a phase of consolidating that growth and success, but there are still some areas that we continue to focus on, such as our M&A practice. We’re obviously extremely well known for private equity, and we’re making great progress in mainstream M&A and strategic M&A. We believe that we can be a firm that is a destination in that area to the same extent as we’re a destination in private equity.’

‘Clients are now looking at the big US firms in London and thinking they can do almost anything the top English firms are doing.’
Justin Stock, Cooley

Arch-rival Kirkland & Ellis, a firm that will easily smash the $5bn global revenue barrier when its financials are released in the coming weeks, has continued its seemingly unstoppable ascent with a 19% year-on-year headcount increase and 125% growth since 2016. Private equity duo Vincent Bergin and Keir MacLennan are the standout lateral hires of 2021, having arrived from Freshfields in October. In addition, 19 partners were made up in its latest round of promotions and its famed fast-track system. In another bold move for the Chicago-bred giant, last December it landed yet another blow on peers in the war for talent, shortening its equity track by a year, meaning admission to the tightly-held equity will now be considered three years into partnership.

Elsewhere, Goodwin has continued its meteoric rise, recording a 51% increase in fee-earners since last year. The figure is typical of the firm’s progress in recent years, which has seen expansion by an extraordinary 179% in the last five years, the most sizeable increase of any Global London firm. The office’s most recent string of lateral hires includes capital markets and ESG specialist Ariel White-Tsimikalis from Bryan Cave Leighton Paisner (BCLP), tax lawyer Dulcie Daly and debt finance partner Hugh O’Sullivan, both from Kirkland.

Cooley followed an underwhelming 2020 – during which it suffered the departures of key partners and was one of the few firms to record a dip in revenue – with a more auspicious 2021. A 26% increase in headcount puts it in the top five firms for headcount growth, while a 50% increase in London revenue was bettered only by Goodwin and Cadwalader.

Justin Stock, Cooley’s London managing partner, is upbeat: ‘The huge growth that came out of London was very much on that transactional side, and that was probably in three areas. Capital markets was a huge driver. We’re very much involved in the foreign private issuer space, which is UK and European companies that are looking to list or have some form of capital markets activity in the US. The M&A team was very busy as well. We got to the point where we weren’t able to accept all instructions coming in because of the amount of very good work that we were doing. The third part has been our emerging companies practice, which works for the start-up community and helps smaller businesses grow.’

The chasing pack

However, not every firm has such reason to be optimistic. Dentons’ London presence continued to dwindle in 2021. While still possessing among the largest number of London fee-earners in the group, headcount has shrunk 12% over the last five years and this downward trajectory has accelerated over the last 12 months. Headcount has dropped 20% since 2020 – the largest decline of any firm in the top 50. The reduction may partially be due to a restructuring that led to the voluntary redundancy of 16 lawyers across the UK, Ireland and Middle East group, the latest development in a strategy that saw Dentons’ Watford and Aberdeen offices close in 2020.

Jones Day bucked its recent trend of retrenching by posting a modest 5% increase in fee-earners in 2021. This wasn’t enough to completely turn the tide (the firm has still shown a 22% decrease since 2016), but there are early signs that the firm is approaching the City with a renewed vigour. Four London lawyers were made up in the latest round of partner promotions – double the investment of the previous year. It was a similar story for Arnold & Porter, whose 6% increase in headcount was welcome relief following recent form which had seen a 26% fall in headcount over the last five years.

Vinson & Elkins is another firm under duress, with a 17% reduction in headcount suffered over 2021 further exacerbated by the recent departure of head of finance and M&A capital markets Noel Hughes, who joined Linklaters alongside leveraged finance partners Giacomo Reali and Christianne Williams.

While several firms were able to reflect the buoyancy of 2021 by an increase in year-on-year billings, BCLP was not so fortunate, posting disappointing numbers which saw headcount and revenue fall by 3% and 4% respectively compared to 2020. The firm’s private wealth practice had a particularly inauspicious start to the year, as January saw the departure of 11 private client lawyers to Taylor Wessing.

Law firm leaders remain bullish in their belief that there are no limits to what can be achieved within their ranks. ‘I think the US firms, including ourselves, have demonstrated to the market that we’re not just a viable alternative to the UK firms, we are potentially even leaders in many of the areas where we focus our business,’ insists Thesing.

‘Where Latham really stands out is in our ability to compete with both the established, European-focused, Magic Circle firms like Freshfields and also the big US firms like K&E.’
David Walker, Latham & Watkins

Will Rosen believes that the direction of travel is pretty clear: ‘When you look at the proportion of the premium work done by US firms it is very clear that US firms are taking a big share of the market. US firms have continued to thrive and prosper in London and they couldn’t do that without good reason.’

Battle lines

Clearly in recent years the battle lines have been redrawn to the extent that no area is out of reach for US firms with the requisite ambition and strategic nous. The current private equity boom has been spearheaded by firms across the Atlantic and even public M&A, long seen as the final stronghold of the Magic Circle, has been breached in recent times.

As Stock notes: ‘The market has shifted over the last few years. You are seeing public, multibillion-dollar transactions go to US firms that certainly ten years ago and possibly five or six years ago the Magic Circle firms would have almost always got. Clients are now looking at the big US firms in London and thinking they can do almost anything the top English firms are doing.’

This has arguably been a while in the making. As Paul Lyons, co-chair of Goodwin’s London office, notes: ‘This isn’t an overnight thing. Anybody who says that the landscape has changed so radically in the past few years ignores the fact that Latham & Watkins has been here for 30 years and White & Case has been here longer. So these incredibly impressive US businesses have been here for a really long time and they always had a really strong influence.’

Latham’s head of private equity, David Walker, is confident about the firm’s position as a match for Magic Circle firms, while also retaining the traditional benefits of having a transatlantic practice: ‘Where Latham really stands out is in our ability to compete with both the established, European-focused, Magic Circle firms like Freshfields and also the big US firms like K&E. We’ve got the global private equity and leveraged finance skills to compete with K&E, but at the same time our full-service European-wide capabilities make us a match for firms like Freshfields in London.’

One thing appears certain – the ever-increasing competition in the market is a good thing for clients, as firms look for ever-more imaginative ways to maximise their offering. No sectors are off limits for international law firms, and it is hard to see this direction reversing any time soon.

Gemma Roberts, Goodwin’s London co-chair, concludes: ‘The extra competition in the market is a good thing. While there might be days I wish there were slightly fewer people chasing the same client prospect, it keeps us all nimble, it means we do our best job, and it also means that what we do is about building relationships, whether it’s internally or externally with our clients. Fundamentally what we do is in the people business, and actually having a competitive market really drives you individually as a person.’ LB

charles.avery@legalease.co.uk

Return to the Global London contents