It’s an unforgiving environment, but 2014 once again shows the well-captained mid-tier outfits sailing free.
‘I’m a great believer that you can always do better and however good a particular year was, you have to exceed that. And we are far from perfect.’ So says Simon Beswick, managing partner at Osborne Clarke (OC), one of the strongest performers in the Legal Business 100 (LB100) this year.
The Bristol-based firm saw turnover rise 26% in 2013/14 – the largest single increase in the LB100 – and has seen revenue rise by 69% since 2009.
Profit growth at the firm has been equally striking, with profit per equity partner (PEP) up 47% to £513,000 this year. However, having moved up five places in the rankings, it is notable that OC’s revenue per lawyer (RPL), at £243,000, is less than the £248,000 posted in 2007/08, while PEP has not returned to its pre-recession peak of £554,000.
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Such is the pressure faced by the second quartile of LB100 firms. While many have registered impressive year-on-year gains, some are still struggling to return to pre-Lehman form.
Stats for those ranked 26-50 in the LB100 tell a similar story to 2012/13, that the second quartile significantly lags the 20 best-performing firms outside of the Magic Circle overall. Those 20 firms generated revenues of £10.69bn, dwarfing the second quartile’s total of £2.64bn.
However, this gulf soon closes when revenue and profit are compared on a per lawyer basis. Average RPL in the second quartile increased by 2% to £255,000, while profit per lawyer (PPL) saw a robust 7% rise to £63,000. This contrasts with the 20 non-Magic Circle firms in the top bracket of the LB100, where RPL and PPL remained static at £313,000 and £85,000 respectively.
Case Study: Bond Dickinson
In its first financial year post-merger, Bond Dickinson – the combination of Newcastle-based Dickinson Dees and Bristol-headquartered Bond Pearce on 1 May 2013 – announced a turnover of £99.1m, placing it firmly within the top-40 of the LB100.
However, this turnover represents an organic increase of less than 1% on the combined revenues of legacy firms Bond Pearce (£50.3m) and Dickinson Dees (£48m) in 2012/13.
‘In year one of any merger there is a lot of work to do, but we are happy with where we got to,’ says managing partner Jonathan Blair. ‘If you factor in the disruption that a merger brings it is fair to say we are pleased.’
While the constituent parts of Bond Dickinson were established players at a regional level, particularly in their respective territories – the south coast and North East – last September the new firm consolidated its national and City teams by merging its two London offices into one single site – subletting 20,000 sq ft of space at Wragge Lawrence Graham & Co’s offices at More London.
‘It’s far more than just an office,’ comments Blair. ‘The intention is that it sends a very clear message to the market, to the people that we have in the business and to those we might be able to recruit in the future about what it is we’re doing and the fact we are serious about the sector we are operating in.’
Additional highlights for the firm include a spate of post-merger lateral hires, such as boosting its private wealth offering in the South West with the addition of an 11-strong team from Osborne Clarke to its Bristol office, as well as Walker Morris’ head of intellectual property, Patrick Cantrill, at the turn of the year.
And while there have been some definite low points – the firm announcing a redundancy programme that cut 7% of its support staff – Bond Dickinson has answered its critics with significant client gains, most notably Network Rail and insurance giant AIG. The firm was also recently reappointed to The Crown Estate’s rural and coastal portfolio and Windsor Estate legal panel alongside Burges Salmon, after the sovereign property portfolio cut its roster of legal advisers from four to two, and won post-merger reappointments on both Sainsbury’s and Virgin’s core legal panels.
Blair insists that his longstanding ‘20:20 Vision’ strategy, which he devised while leading Dickinson Dees with the aim of positioning the firm among the top 20 firms by 2020, is still very much in place. However, he admits that even post-merger this target can only partly be driven by organic growth, with the firm still receptive to future mergers or acquisitions in the short to medium term.
‘We are not going to get close to that level of fee revenue generation by organic growth alone. Lateral hires, including those so far, are clearly part of revenue growth. In addition, we have to continue to keep a careful eye on the market with a view to identifying whether there are any other merger or acquisition opportunities.’
Front runners
Against this collective strength, there are a number of standout individual performances, not least Stephenson Harwood (see case study), which has turned things around after suffering a five-place drop last year. Revenue rose by 8% to £121m, marking the firm’s sixth successive year of growth.
Mishcon de Reya, meanwhile, continues its relentless surge up the rankings, climbing three places this year to 37th and enjoying 121% growth since 2009. The firm this year hit its target of £100m in revenues by 2016 with 2013/14 turnover up 18% to £104.6m and PEP up by 16% to £975,000. Managing partner Kevin Gold told Legal Business: ‘We’ve got to consolidate our position as a Rolls-Royce house. We’ve had fantastic figures, but we need to bed that down and create a sustainable profit level.’
Likewise, Macfarlanes, which was also singled out last year for its trend-busting performance, has maintained momentum with a 20% increase in both revenue and PEP – breaking through the £1m PEP threshold. With 41% of fee income generated by its corporate practice, this is a firm that has seemingly bucked the post-Lehman trend for transaction-focused firms to struggle. Over the past five years, revenues have increased by 41% from £99m to £139.7m, while PEP has grown 42% from £846,000 to £1.2m. Senior partner Charles Martin believes success comes down to a straightforward formula.
‘We keep it simple. Clients see the difference: our people don’t have a lot of internal stuff to deal with. We don’t have the cost and time wastage of having a complicated bigger business.’
Competitor Travers Smith, which also punches above its weight for mid-market corporate mandates – including recently advising on UK aspects of the $1bn demerger of Paragon Offshore from Noble – posted its strongest financial results to date, with turnover for the year up 13% to £97.2m and PEP increasing 11% to £880,000.
On whether the firm’s reliance on its highly regarded but volatile corporate practice is sustainable, senior partner Chris Hale comments: ‘To better balance our practice we have, over the last few years, expanded our disputes team by recruiting first rate senior associates who have come through to partnership. We’re also investing in other areas that don’t have the same sort of turbulence you can experience in the transactional world, and have, for example, developed a financial services and markets team.’
However, he concedes: ‘There are relatively few lawyers with financial services skills and we’re not just competing for these lawyers with other law firms but with other institutions, such as banks, that are bolstering their compliance functions. We would like to expand our financial services and markets practice faster but we find recruitment constraints in the current market a challenge.’
A firm that has consistently elicited high expectations is RPC, one of the top LB100 performers last year and during the last five years. But like many firms with a heavy insurance bias (see box, ‘Peaks and troughs’), the City firm experienced mixed results this year with revenue up 2% but PEP down 9% to £338,000, a result rooted largely in significant investment, according to managing partner Jonathan Watmough.
‘We were pleased with last year because we had to replace some very big pieces of exceptional income – 2012/13 had seen big one-off transactions and pieces of litigation but we were able to replace that, and with interest. But it could have been better – there was a significant uptick in activity towards the financial year-end but too late to be accounted for in the 2013/14 financial year. But it has meant this year has got off to a flying start – revenue to date is already 14% up on the same period last year, with average recovered rates also continuing to climb.
‘As expected, our partner profit for last year at £26m was 6% down on 2012/13… chiefly to do with heavy investment ahead of the curve and also timing on the delivery of some revenue that has now spilled over into this year.’
Outside insurance, prominent real estate player Nabarro continues its struggle to significantly reverse its fortunes, despite a reported revival in real estate work. Having consistently slipped down the UK legal rankings from its 2008 high when it stood in 23rd place on the back of a revenue increase of 16% to £142.4m, it has fallen a further five places down to 35 this year, with revenues flat at £116.7m. However, the firm’s PEP did rise 12% to £480,000, constituting a double-digit increase for the second successive year and Nabarro has made some notable hires and investment recently, including adding Addleshaw Goddard’s real estate head Mark Haywood, and partners Monica Brij and Nathan Jansen to launch a new base in Manchester.
Which firms have the biggest UK business?
This table lists the top 50 firms by UK revenue. Once international fee income is taken out of the equation, the strong UK performance of firms such as Eversheds and Pinsent Masons becomes apparent.
Firm |
UK revenue (change on 2013 in brackets) |
| Linklaters | £546m (6%) |
| Freshfields Bruckhaus Deringer | £470m (1%) |
| Clifford Chance | £469m (6%) |
| Allen & Overy | £455m (1%) |
| Slaughter and May | £448m (4%) |
| Eversheds | £340.2m (3%) |
| Herbert Smith Freehills | £332m (7%) |
| Pinsent Masons | £280m (3%) |
| Hogan Lovells | £265.4m (4%) |
| DLA Piper | £260m (3%) |
| Clyde & Co | £221.5m (10%) |
| Norton Rose Fulbright | £217m (16%) |
| Ashurst | £211m (11%) |
| Berwin Leighton Paisner | £205.5m (1%) |
| Irwin Mitchell | £202.7m (1%) |
| DWF | £189.1m (2%) |
| DAC Beachcroft | £182.3m (5%) |
| Addleshaw Goddard | £167.5m (1%) |
| CMS | £159.3m (-2%) |
| Simmons & Simmons | £158m (10%) |
| Macfarlanes | £139.7m (22%) |
| King & Wood Mallesons SJ Berwin | £125m (3%) |
| Dentons | £120m (n/a) |
| Nabarro | £115.5m (1%) |
| Taylor Wessing | £112m (7%) |
| Wragge & Co | £111m (3%) |
| Hill Dickinson | £105m (-2%) |
| Slater & Gordon UK | £103.1m (n/a) |
| Squire Patton Boggs | £100m (1%) |
| Bond Dickinson | £99.1m (n/a) |
| Kennedys | £98.3m (10%) |
| Mishcon de Reya | £97.8m (17%) |
| Travers Smith | £94.3m (9%) |
| Shoosmiths | £93m (7%) |
| Stephenson Harwood | £90.4m (8%) |
| Olswang | £89.7m (4%) |
| BLM | £89m (6%) |
| Osborne Clarke | £88.4m (16%) |
| Weightmans | £87m (6%) |
| Fieldfisher | £82m (9%) |
| RPC | £80m (3%) |
| Thompsons | £80m (1%) |
| Mills & Reeve | £79.3m (13%) |
| Bird & Bird | £77m (7%) |
| Holman Fenwick Willan | £76.6m (9%) |
| Burges Salmon | £76.5m (4%) |
| Withers | £64m (7%) |
| Trowers & Hamlins | £61.3m (0%) |
| Ince & Co | £52.2m (-12%) |
| Watson, Farley & Williams | £47.8m (9%) |
Newcomers
The second quartile has not been able to avoid the relentless tide of consolidation that has affected the wider market. Newcomers include Slater & Gordon on the back of successive acquisitions in 2013 (see box, Peaks and troughs) and Bond Dickinson in its first full year following the merger of Bond Pearce and Dickinson Dees (see case study above).
Further consolidation saw BLM merge with Scots practice HBM Sayers on 1 May 2014 to create a £100m risk and insurance-focused firm with 170 partners. With 39% growth since 2009, the firm also recorded a 5% revenue increase to £89m in 2013/14 alongside an 11% PEP rise to £249,000, placing it in good stead to achieve its objective to become a force in the corporate insurance and healthcare business.
Another firm looking to move up the rankings in 2014/15 is Wragge & Co, which should break into the top 25 despite slipping four places this time around and recording broadly flat revenue (up 1% to £121.2m) alongside a 9% PEP increase to £367,000. In May, the firm finalised its tie-up with a struggling Lawrence Graham and created a 770-lawyer, £171m business. New chief executive David Fennell, who took over from longstanding head Ian Metcalfe in April, says the firm ‘had a great second half’ and ‘transactional deal flow was a key driver, in real estate particularly’.
‘I expect to see more consolidation – but how much and at what level I’m not sure,’ he says. ‘There’s not many good candidates left but you’ll continue to see it in the lower 50 firms.’
Case Study: Stephenson Harwood
Recording a fifth successive year of growth, Stephenson Harwood’s revenues grew 8% year on year in 2013/14, from £112.3m to £121m. Coupled with a 17% increase in its profit per equity partner (PEP) from £453,000 to £532,000, this litigation-heavy firm has become one of the strongest performers in the second quartile of the LB100.
Boosted by the continuation of the Fiona Trust litigation – an eight-year shipping fraud trial between Dmitry Skarga – advised by head of international arbitration Louis Flannery – and Russian state-owned Sovcomflot – as well as a strong year in its transactional practices, the firm’s revenue was up by £8.7m. Over the last five years, turnover has grown 42% while net income has risen 32%. Stephenson Harwood has not had a meaningful drop in turnover in ten years, constituting a substantive revival after a very troubled period in the late 1990s and early 2000s.
But while the firm has managed to achieve continuous revenue growth, even in the immediate aftermath of the recession, the same cannot be said for the firm’s PEP, which fell 10% to £453,000 in 2012/13. This year’s rise of 17% takes PEP closer to levels seen by the firm in 2011/12 but still some way off its 2009 peak of £616,000.
Chief executive Sharon White, who took the role amid turbulent conditions in 2009 and was reappointed earlier this year for another three-year term, says: ‘I feel more confident about this financial year than my whole time as a chief executive. It has been particularly pleasing to see an uptick in transactional activity.’
Notable client wins include replacing Shearman & Sterling as adviser to property tycoon Robert Tchenguiz on a significant matter recently, with litigator Sean Jeffrey now managing a claim for damages on behalf of both brothers (Robert and Vincent Tchenguiz) on the high-profile lawsuit against the Serious Fraud Office, which settled in August for £4.5m. The firm is also defending former Leeds United managing director and one-time GFH Capital general counsel David Haigh against allegations of fraud, embezzlement and money laundering.
Other key matters include advising GDF Suez on its £190m Balfour Beatty acquisition led by corporate partner Andrew Edge; partner Tammy Samuel’s advisory role on Northern Rail’s franchise agreement with the Department for Transport; and representing Baker Tilly’s sale of its private client financial management business, also led by Edge.
With five of its nine global offices in South and East Asia, it is unsurprising the firm made plans to open in the burgeoning Seoul market, with the hire of DLA Piper’s local office head and litigation partner, Michael Kim, in February 2014. The firm also received formal approval to combine with Singapore firm Virtus Law from the local Attorney General’s Chambers in March this year after tying up with the local firm last summer, the same time as it expanded its Asia operations with an office in Beijing.
The firm has also looked to invest to develop a lucrative private client practice. James Quarmby, head of international and business taxation at South East practice Thomas Eggar, joined the firm in April as a partner to spearhead the expansion of its private wealth offering.
Obvious shortcomings aside, the second quartile still generates a hefty £700m more than the entire bottom 50 of LB100 firms. And sentiment expressed by leadership in these firms shows they are evidently up for the challenge. Fieldfisher’s managing partner Michael Chissick, is one such example. The last year has seen his firm pass the £100m revenue threshold with a 9% rise to £104m, while also investing in laterals and acquiring Manchester-based boutique Heatons in February to expand its regional presence and provide clients with a lower-cost offering.
‘Managing partners live and die by financial results,’ he says. ‘If the firm doesn’t capsize and the partners are happy with me, then I would like to stay another term. As for the squeeze on the middle, it could bring opportunities… perhaps a greater chance of panel appointments as companies will want a mix of firms, from Magic Circle to mid-tier… who are available to service a range of work.’ LB
sarah.downey@legalease.co.uk