Our 12th annual Legal Business Global London survey reveals the pressure a mounting US offensive is putting on City stalwarts. Can the UK firms resist the advance?
Maurice Allen, co-managing partner of Ropes & Gray’s London office, knows all about the major players in the City, having taken in Clifford Chance (CC), White & Case and Freshfields Bruckhaus Deringer during his career. ‘All US firms are doing extremely well,’ he says. ‘A number of firms made significant investments – they’re hiring because the market is playing very nicely to the US firms.’ A biased view perhaps but one that is backed up by the data in this year’s Global London survey: overall headcount of the 50 largest global firms in the UK is up by 6% on the previous year to 4,624 from 4,382.
Proportion of international and UK-qualified lawyers
Global London total headcount 2002-13
The total number of partners has risen by 3% from last year’s all-time high of 1,325 to 1,364, while among the ten largest firms in our table, partner headcount is up 5% on the previous year. The only blot is the fall from the lateral hiring frenzy of 2012/13, with the total number of hires across the top 50 modestly down to 84. The ten largest firms in the top 50 account for by far the largest share of those hires – 34 in total.
Reasons for continued investment by global law firms into London include the growing demand for English law, especially from emerging economies, and the attraction of London to US funds – both private equity and hedge funds. Longstanding relationships with the large US institutions means clients want their US firms to advise them on the ground in the UK, provided they have the capability. Private equity and high yield are resurgent and when added to the increased presence of US advisers in the London litigation arena, it is clear that top American firms are continuing to advance. With US firms on the offensive for the third year, the question is whether City firms have a response.
Picking up the pieces: The firms that made the most lateral hires in 2013/14 |
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| Firm | Partner | Previous firm | Date |
| Mayer Brown | Greg Stonefield | White & Case | September 2013 |
| Patricia Jones | SJ Berwin | October 2013 | |
| Richard Todd | Berwin Leighton Paisner | November 2013 | |
| David O’Connor | Allen & Overy | November 2013 | |
| Trevor Wood | Berwin Leighton Paisner | December 2013 | |
| Stefan Martin | Allen & Overy | January 2014 | |
| Latham & Watkins | David Walker | Clifford Chance | May 2013 |
| Simon Bushell | Herbert Smith Freehills | June 2013 | |
| Dean Naumowicz | Norton Rose Fulbright | July 2013 | |
| Tom Evans | Clifford Chance | October 2013 | |
| Nick Benson | Weil, Gotshal & Manges | January 2014 | |
| Kem Ihenacho | Clifford Chance | February 2014 | |
| Jones Day | Sumesh Sawhney | Clifford Chance | March 2013 |
| Brian Conway | Latham & Watkins | September 2013 | |
| Raymond McKeeve | Berwin Leighton Paisner | November 2013 | |
| Michael Weir | Berwin Leighton Paisner | January 2014 | |
| Ben Larkin | Berwin Leighton Paisner | February 2014 | |
| Reed Smith | Rashpaul Bahia | McDermott Will & Emery | April 2013 |
| Claude Brown | Clifford Chance | April 2013 | |
| Eoin O’Shea | Lawrence Graham | July 2013 | |
| Jonathan Solomon | Dentons | September 2013 | |
| Ben Davis | Travers Smith | February 2014 | |
On the offensive
While overall headcount among the top 50 global firms in London has increased by 6%, there are a number of firms that have bulked up far more substantially than that. Although this year we have taken total lawyer headcount as of 1 January 2014 – as opposed to a yearly average headcount for 2013 – a change in methodology that is likely to have modestly accentuated the trend growth, some firms have posted remarkable growth in the last 12 months.
Another upstart, King & Spalding, saw its headcount surge by 64% compared to last year’s average, albeit mostly at associate level. This follows 19% growth in headcount in last year’s report, fuelled largely by an aggressive lateral hiring spree in 2012. Partnership growth in London through lateral recruitment was more modest in 2013/14, with just three new arrivals, including financial services litigation and white-collar crime specialist Angela Hayes from Mayer Brown in September.
‘The office is bulging – we’ve hired some really great people over the last two years,’ says Garry Pegg, London managing partner of the firm. The firm’s recently released global financial figures for 2013 show the firm broke the $2m profit per equity partner (PEP) barrier last year, and saw its revenue increase by 4% to $861.4m.
UPWARDLY MOBILE: Revenues of the top ten global London firms by headcount
| Firm | London turnover 2013 | London turnover 2012 | Percentage change |
| Latham & Watkins* | £140m | £130.8m | 7% |
| Baker & McKenzie | £135.8m | £126.8m | 7% |
| White & Case* | £130m | £125m | 4% |
| Reed Smith | £126.4m | £111.7m | 13% |
| Mayer Brown* | £104m | £93m | 12% |
| Kirkland & Ellis* | £98m | £94m | 4% |
| Shearman & Sterling | £89.6m | £71m | 26% |
| Weil, Gotshal & Manges | £75.8m | £73m | 4% |
| Dechert* | £72m | £67m | 7% |
| Jones Day* | £70.4m | £64m | 10% |
| * Financial figures not supplied by firm | |||
The largest global firms in London by headcount had a robust year financially, with an average increase in revenues of 9%, up from £95.6m to £104.2m. What is also clear from the global revenue figures emerging from these firms is that the London financial performance is stronger on average than firmwide numbers. Even Weil, Gotshal & Manges, where firmwide turnover fell by 7.4% in 2013, had a respectable year in London, with revenues up 4%.
Latham & Watkins holds the top spot for revenue of the Global London firms, with fee income up 6.6% to £140m. This performance is more than double the growth posted by the firm as a whole for 2013, with revenues up 2.7% to $2.29bn. Nick Cline, London managing partner, says: ‘The significant investments we made last year have helped generate strong momentum in the London market and give us good reason to be optimistic about the year ahead. There is renewed confidence in Europe, capital markets are performing strongly and our ability to switch debt financing work across different product areas and between top-tier practices in London and New York continues to stand us apart.’
Meanwhile, Baker & McKenzie remains in a strong position financially with a 7% rise in London turnover to £135.8m. Again, this eclipses firmwide turnover growth, which was up 5% to $2.419bn, at the firm’s year-end on 30 June. ‘Global and US firms are making the running in the London market. If you’re not in that group then it’s hard because the domestic market isn’t strong enough to support your ambitions and there are just too many firms trying to operate in the same space,’ says London managing partner Paul Rawlinson.
However, the standout performer in the top ten is Shearman & Sterling, which saw its revenues rise by 26% in 2013 to £89.6m. Nick Buckworth, managing partner of the City office, says after years of successive moderate growth, Shearman had a great 2013, describing the firm as doing ‘better than well’. Global revenues for the firm were up 9.1% to $820.5m and, as for London, Buckworth says ‘the results show how much potential energy was untapped’. The result will be seen as a real victory for a firm that made huge strides in the City in the early 2000s but was widely seen to have lost its way.
Another firm where progress had previously stalled, Mayer Brown, has also put in a good performance in the City. London senior partner, Sean Connolly, says: ‘2013 was a good year for the firm in London and globally. Globally we were up 5% in revenue and 12% in profit. Revenue was up by 12% in London.’ This is a vast improvement on 2012’s London office finances, which saw a 5% drop in turnover. The days when a London office was an expensive luxury are long gone. For many firms, the City is driving growth and profits.
Another firm that strengthened through a lateral hiring drive in 2012 is Morgan, Lewis & Bockius. It followed up a 75% headcount leap then with another 51% increase in fee-earners last year. Dewey & LeBoeuf’s former London head, Peter Sharp, who became co-managing partner of Morgan Lewis’ London office in 2012, says: ‘The firm’s had too low a profile in the past. It has a huge standing in US legal circles, that’s previously not been reflected as much as you’d want in the London offering but we’re getting there now.’
The firm made four lateral hires in 2013/14, including private equity partner Tom Cartwright from Taylor Wessing at the start of this year as well as former Shearman & Sterling and latterly K&L Gates project finance partner Mathew Kidwell in 2013.
While the London ascent of the three firms mentioned above has been well documented, the recent growth of elite Wall Street firm Cravath, Swaine & Moore is more surprising. The Manhattan firm has increased its headcount by ten lawyers, or 42%. A firm known mainly for its domestic New York work, on the numbers alone it seems to have followed the same route as its peer group firms such as Sullivan & Cromwell and Cleary Gottlieb Steen & Hamilton by investing in London in recent years. However, the firm has no English-qualified lawyers, so its investment can be distinguished from those firms as it is clearly still focusing on US cross-border work and working alongside referral firms such as Slaughter and May.
Breakdown of all lateral hires by practice area
Top five fastest-changing London offices by headcount
Lateral hires
‘We have been very busy on a mix of US law-related work across EMEA, including high-yield finance, and the increased headcount reflects that workload and the firm’s commitment to serving its international clients and handling complicated cross-border work from its hub in London,’ says London managing partner Philip Boeckman.
‘2013 was good for us in London,’ says London managing partner Tom Dollinger. ‘We have a good framework in place for a full commercial offering. We are now targeting where we want a deeper bench. Our current focus in that respect is M&A and finance. In all likelihood it will be done through the lateral markets.’
However, while the majority of Global London firms have posted robust headcount growth, there are others that have been in decline. Fried, Frank, Harris, Shriver & Jacobson saw its headcount drop by 21%, the largest fall in percentage terms of the top 50 last year and headcount of the office is down 28% on 2008. Valerie Ford Jacob, head of the London office, attributes the decline in headcount to the departure of its real estate team to King & Spalding in 2012. ‘Our real estate practice in the US is the premium practice – we represent all the big financial and corporate players in that space and that wasn’t the real estate practice we had in London,’ she says.
Similarly, though many firms saw growing UK revenues through 2013, two players that have previously been in expansive form in the City – Quinn Emanuel Urquhart & Sullivan and Bingham McCutchen – saw London revenues fall by 28% and 4.4% respectively.
While headcount went up by a solid 13% at McDermott Will & Emery in 2013, lawyer numbers are nonetheless down 35% from 2008, a result of significant movement post-Lehman. The 1,024-lawyer firm was active in the lateral hiring market in 2013, bringing in 22 partners across 11 US and international offices, and the firm hired three laterals and made up three partners in the City last year, all clear indicators of recovery. The firm’s fall and revival can be seen from its financial performance globally in recent years. In 2009 its turnover was $962m, after which it suffered a post-recession drop in revenue of over 18% in two years. By 2012 it had posted a 3% revenue increase to $851m, followed by a 3.5% rise to $881m last year.
Firm focus: Jones Day
London lawyer headcount 2008-13: 186 to 178
Speciality: M&A, litigation, banking/real estate
London headcount: 178 lawyers, 61 partners
Office head: John Phillips
Representative London work: Successfully defending Texas Keystone against Excalibur Ventures’ $1.6bn claim for an interest in various petroleum fields in Iraqi Kurdistan.
Advised Eurasian Natural Resources Corporation (ENRC) on its £3bn take-private.
Although Jones Day has been resident in the City since 1986, such is its growth since its high-profile merger with Gouldens in 2003 that London is its largest office outside the US.
For a firm notoriously guarded about sharing financial information, particularly partner remuneration, Jones Day has not found it difficult to attract lateral hires in London of late. While the firm managed more than 50 lateral hires globally in 2013, the London office clocked up three lateral hires last year and three others more recently, with four of those new recruits coming from City rival Berwin Leighton Paisner (BLP). The most notable name was BLP private equity head Raymond McKeeve, who joined in October, closely followed by another BLP private equity partner, Michael Weir, who started in January this year.
Since the turn of the year, Jones Day has also brought in BLP’s head of restructuring, Ben Larkin, and also hired one of its banking and capital markets partners, Paul Simcock, in March.
London managing partner John Phillips says that these recent hires were made from a position of strength, something that has not always been the case. ‘In the last three years we brought in laterals where we had an obvious need to strengthen, employment and debt capital market being an example of that,’ he says.
Other notable hires include former Latham & Watkins banking partner Brian Conway and Clifford Chance’s India corporate partner Sumesh Sawhney. Conway’s hire reflects the banking mandates the firm has won recently, including advising BNP Paribas on its purchase of The Royal Bank of Scotland (RBS)’s structured retail products and equity derivatives business. The firm is also acting for various clients in purchasing failed Irish bank IBRC’s entire loan book which, according to London finance partner Michael Pabst, is worth ‘north of €70bn’.
Phillips says the ‘four pillars’ which made Jones Day successful last year include M&A, litigation, aiding clients in relation to the financial crisis and its real estate practice. He also points to the fact the firm has maintained the number one worldwide ranking for the volume of deals in both the Thomson and Bloomberg M&A deal tables every quarter since year-end 2000. ‘Jones Day is number one in volume and has been for many years. We are also involved in many of the largest deals by value,’ says Phillips. The London office advising ENRC on its £3bn take-private is evidence of that, as is the firm’s role in the largest deal of 2013 – advising Verizon on Dutch law aspects of its $130bn purchase of a 45% stake in Verizon Wireless from Vodafone.
Jones Day is well regarded among peers for its litigation practice, so Phillips describing the firm as a ‘litigation powerhouse’ doesn’t smack of hyperbole. The firm was a joint winner of this year’s Legal Business’ Dispute Resolution Team of the Year award for its work advising Texas Keystone.
Phillips says that the firm’s London office revenue is up for the fourth year in a row. It is understood that London turnover is up by 10% compared to the previous financial year, equating to £70.4m.
Top ten
Growth rates are steadier among the ten largest firms in the table. Average year-on- year headcount growth is half that of the top-50 as a whole, although partnership growth is higher on average at 5%, compared to 3% for the entire 50.
Reed Smith continues its push in the City with an 8% growth in fee-earners. The London office may be the firm’s largest but, according to EMEA managing partner Roger Parker, 65-70% of its London revenues come from outside the UK. The firm made five lateral hires last year and seven the previous year as it looked to bulk up in its key sectors of energy, financial services and litigation. Among the laterals, former CC partner Claude Brown joined the firm’s burgeoning finance team. Eoin O’Shea joined from Lawrence Graham to give the firm’s white-collar capability a boost. The firm also hired two energy partners: Rashpaul Bahia from McDermott Will & Emery and Jonathan Solomon from Dentons. However, despite another year of sustained investment into its City practice, Parker is restrained in his prognosis. ‘I’m cautious and not particularly optimistic about the growth of law firms’ revenues globally,’ he says. ‘While there is more going on with the UK and New York economy there are some macro forces out there [regarding emerging markets], which may well impact service providers.’
Gloomier predictions aside, there is clear evidence that US firms are making more significant lateral hires in London, particularly in corporate. While litigation has emerged as a particularly strong suit for certain US firms in London in recent years (see ‘The justice play’), corporate remains king. Around half of all London partners among the top ten and 38% of the Global 50 as a whole are in corporate, while 30% of all lateral hires made by the Global 50 last year were in corporate and 44% of the top ten’s hires were in this practice area. The most dynamic players are taking advantage of a reviving deals market to attract sought after M&A professionals.
Global London: Law of Averages
Average number of lawyers
Average number of partners
Average year on year growth in lawyer numbers
Average year on year growth in partner numbers
Average partnership promotions in latest round
Following its trophy hire of Simon Witty from Freshfields in 2012, Davis Polk & Wardwell added Herbert Smith Freehills’ respected dealmaker Will Pearce in May last year. But the most eye-catching development over the last 12 months was Latham & Watkins’ raid on CC’s private equity practice. Its recruitment of the Magic Circle firm’s global head of private equity David Walker was arguably the standout lateral hire in London in 2013 but this was followed up by Walker’s former colleague Tom Evans in October and co-head of CC’s Africa practice and private equity star Kem Ihenacho.
Such hires of deal lawyers in their prime suggests that foreign firms have become increasingly attractive to ambitious partners.
‘UK lawyers were reluctant to go to US firms because there was a perceived risk factor – you worked harder and they were flakier,’ says Allen. ‘That’s changed – UK firms are seen as risks because they’re shedding partners, when you are getting into your fifties they’re looking to ease you out. We see the compensation system of the UK firms giving us a competitive advantage.’
Mayer Brown along with Latham was one of the most active recruiters last year, hiring six partners. In many ways this represents an attempt by the firm to replenish its stocks as the firm’s problems in London have been well documented (see ‘Altered images’, LB234) – London headcount is down 3% this year and a quarter over the last five years. The firm has significantly bulked up its banking and finance practice with the addition of BLP partners Trevor Wood and Richard Todd, as well as David O’Connor from Allen & Overy and Mayank Gupta from White & Case. Its real estate practice was also significantly bolstered by the arrival of Patricia Jones from SJ Berwin. Sean Connolly, senior partner of the firm’s London office, says: ‘The market is incredibly competitive. We’re very pleased with the people we hired. They are interested in the global opportunities our platform provides.’
Firm focus: Skadden, Arps, Slate, Meagher & Flom
London lawyer headcount 2008-13: 137 to 125
Speciality: Corporate, disputes
London office: 125 lawyers, 30 partners
Office head: Pranav Trivedi
Representative London work: Advised BlackRock on the purchase of Credit Suisse’s exchange-traded funds division, the first time BlackRock had instructed a US firm on a major European transaction, having historically used the Magic Circle.
Represented the joint bookrunners, including Credit Suisse, Deutsche Bank and J.P. Morgan on the $1bn dual listing of Russian hypermarket giant Lenta on the London and Moscow Stock Exchanges, creating the world’s largest publicly listed BVI company.
Skadden, Arps, Slate, Meagher & Flom launched in the City back in 1988 when it hired high-profile M&A partner Bruce Buck to launch its offering. Twenty-six years later, Buck announced in February he would step down and hand the baton over to M&A partner Pranav Trivedi – previously head of the Wall Street giant’s Moscow office.
The office has also seen other management reshuffles recently, including Karyl Nairn QC and disputes partner David Kavanagh, who were named global co-heads of the firm’s international disputes group, alongside New York disputes partner John Gardiner. Energy and infrastructure projects partner Doug Nordlinger has taken over as global head of the energy and infrastructure projects group, replacing Martin Klepper in Washington DC.
While the firm is viewed as a top-tier player in most key practice areas on the other side of the pond, in London, the firm’s practice is still focused around corporate, particularly M&A. Despite this tight focus, the office has a very strong contentious capability, with six of its 30 London partners in the team, which picked up Dispute Resolution Team of the Year at the Legal Business Awards in 2012 and 2013.
Last year, Nairn – who was a key figure in the defence of Roman Abramovich in the epic court battle with oligarch Boris Berezovsky – was the only solicitor-advocate to be awarded QC status in the 2013 round of silk appointments. However, the firm also lost litigation and arbitration specialist Penny Madden, who quit 16 months after being promoted to Skadden’s partnership, to join US rival Gibson, Dunn & Crutcher, although she was expected to relocate to one of Skadden’s Asian offices.
Conversely, the office has been largely inactive in the lateral hire market in recent years. The most recent recruits came in January 2012, when it strengthened its corporate restructuring practice with the hire of partner Dominic McCahill from Weil, Gotshal & Manges, and Macfarlanes funds partner Stephen Sims joined to launch the firm’s first investment management practice outside the US.
In 2013, its London fee-earner headcount increased by just one. Trivedi comments: ‘Two areas where we identified an increased client demand, and recruited at a senior level, were in investment management and restructuring. [Sims] has already developed a phenomenal practice, and the team he has created has been instrumental in winning important mandates from new clients, as well as instructions from our US client base looking for counsel in Europe.’
Done deals
‘When M&A work slows, an over-crowded commercial legal world stops functioning. So it is wonderful to see the commercial world spinning again,’ says Christopher Walter, managing partner of Covington & Burling’s London office. This confidence in the London market is shared by Daniel O’Donnell, chief executive of Dechert: ‘Unless we have some very disruptive external events, in the UK and Europe we are seeing a period of recovery.’
And while Latham and White & Case may have taken some of the private equity talent from the Magic Circle, it is Skadden, Arps, Slate, Meagher & Flom that provides one of the clearest examples of directly challenging the London elite. Last year it advised BlackRock on its acquisition of Credit Suisse’s exchange-traded funds division. This deal was the first time BlackRock instructed a US firm on a major European transaction, having historically used the Magic Circle for this work. For many firms, translating strong US-based relationships into the European market is the ultimate end game.
Another deal that particularly illustrates the penetration of US firms into the UK market is Shearman’s work for The Co-operative bondholders regarding a controlling stake in the bank last year. The firm advised major bondholders, hedge funds Aurelius Capital Management and Silver Point Capital, on their attempt to gain ownership of the bank and illustrates the steps the US firm has made into the London market. Such mandates underline a notable shift in the market over the last five years: the transformation of City outposts from expensive trophy assets into practices actively contributing to firm-wide growth and profits.
However, Reed Smith’s Roger Parker doesn’t believe the Magic Circle has to worry about its place among the global elite just yet.
‘Firms are vulnerable to losing people on an individual basis but the Magic Circle are there for the long term among a group of strong international firms. They are going to be challenged but their position isn’t going to materially change in the foreseeable future.’
But with the increasing migration of some of the City’s top partners to US firms, there’s no denying that the UK elite is currently on the defensive on many fronts. For US players, the winning streak has been sustained for yet another year. LB
david.stevenson@legalease.co.uk
Firm focus: White & Case
London lawyer headcount 2008-13: 365 to 310
Speciality: Corporate, finance and dispute resolution
London office: 310 lawyers, 72 partners
Office head: Oliver Brettle
Representative London work: Represented Çukurova in a six-year battle with Alfa Telecom Turkey over a controlling stake in Turkcell, Turkey’s largest mobile telecommunications company.
Advised international healthcare group Bupa on the proposed €400m acquisition of LUX MED Group, the largest healthcare provider in Poland.
Boasting one of the largest US practices in London, White & Case usually takes second or third place in the Global London list. This year the firm remains third with headcount growing just 2% to 310 lawyers, while Reed Smith at second place grew by 8% to 340.
The office has continued to rebuild after slimming down in the wake of the 2008 banking crisis and made substantial investments in its capital markets, disputes and M&A practice areas in 2013 in a bid to focus on growing these teams across its European network.
The firm has made some eye-catching strategic hires, including the significant double hire when it strengthened its UK private equity markets practice with Linklaters duo Richard Youle and Ian Bagshaw, who officially joined the firm in January. Shortly after, equity capital markets partner Inigo Esteve joined from Clifford Chance. The corporate lateral hires in 2013/14 were kick-started by the arrival of Ross Allardice from rival US firm Kirkland & Ellis last summer. The Linklaters hires have already started to pay dividends: in March the firm won a place on buyout house HgCapital’s law firm panel.
However, the firm did lose banking head Magdalene Bayim-Adomako recently, while restructuring partner Stephen Phillips left for Orrick, Herrington & Sutcliffe, where he now co-heads the firm’s European restructuring team.
Globally, White & Case reported a steady 4.1% increase in global revenues with profits per equity partner (PEP) rising 10%.
One potentially significant hole in London fee income comes after the firm was blocked from acting for major Ukrainian client Victor Pinchuk in a $2bn High Court battle over client confidentiality concerns. The case was picked up by Hogan Lovells in February.
Methodology
The firms that appear in Global London are the 50 largest non-UK originated firms in London, ranked by headcount. Partner and lawyer numbers were all requested as full-time equivalents as of 1 January 2014. All partner hires were up to and including February 2014. Total lawyer numbers include partners, associates, assistants and trainees but not paralegals. The US Internal Revenue Service average exchange rate for the year 2013 was used for Global London calculations. This was $1=£0.665.