While headline figures for revenue, profit and headcount in this year’s LB100 confirm another year of subdued trading, a look at how the top 100 UK-based firms by revenue have performed overall since the halcyon, pre-credit crisis days of 2006 makes interesting viewing. Not least as they are testament to the inherent strength of the industry, despite the hurdles it has seemingly faced in ten years. We also look at 2011 as a five-year mid-point, the stage when the global financial crisis had started to ebb.
Our 2006 report, which was the penultimate year of boom before the credit crisis took hold in 2007/08, showed that collectively the LB100 amassed £10.8bn in combined revenues, which had increased 44% to £15.5bn by 2011 before doubling to £20.19bn in the last financial year. Net income, too, climbed at a similar rate – up 32% from £3.52bn to £4.65bn by 2011 and, five years later, growing 38% to £6.39bn in 2015/16 – a growth rate of 82%.
Lawyer headcount has grown 45% in a decade – from 42,827 fee-earners to 62,214, which explains some of the significant top-line growth among the UK’s leading law firms but certainly not all of it – the firms have swelled revenue at almost twice the rate they have grown lawyers. The age of law firm consolidation has inevitably flattered income growth – the average LB100 firm has 621 lawyers compared to 428 in 2006 – but a vast amount of the income boost to the LB100 over the last decade has come from mergers in other jurisdictions, most notably the US. The US revenue of global firms DLA Piper, Norton Rose Fulbright and Hogan Lovells has been significant, as was the Australian turnover added to Herbert Smith Freehills and Ashurst.
The interesting analysis comes from looking at the rise of revenue per lawyer (RPL), profit per lawyer (PPL) and profit per equity partner (PEP) over ten years and seeing how the global financial crisis did little ultimately to halt the progress of UK Law. Between 2006 and 2016 average RPL, PPL and PEP have each grown between a quarter and a third: RPL from £252,000 to £325,000 (+29%); PPL from £82,000 to £103,000 (+26%); and PEP from £537,000 to £699,000 (+30%).
On a more granular level, individual performances by firms that have not been materially affected by consolidation are noteworthy. In 2006, Clifford Chance became the first firm to breach the £1bn mark. Now there are seven firms, not counting Denton Wilde Sapte, which was in the top 20 of the LB100 in 2006 and went on to become part of a more global business. In 2006, Linklaters became the second firm to have a PEP in excess of £1m (after Slaughter and May) – now there are 11 firms that on average have partner profits of £1m or over.
Notable also is the number of firms that made the LB100 in 2006 that no longer exist in their current form – Hammonds, Richards Butler, SJ Berwin, Barlow Lyde & Gilbert, Wragge & Co, Halliwells, Cobbetts, Dundas & Wilson, McGrigors, Pannone, Russell Jones & Walker, Thomas Eggar, Tods Murray and Finers Stephens Innocent to name some of the most obvious legacy firms.
As such, comparing organic performance of individual firms over ten years is difficult, with many firms falling out of the LB100 or merging and altering their structure so significantly as to make meaningful ten-year comparisons in performance unrealistic. From a pool of just over half of the LB100 in 2006 with which realistic comparisons can be made, there are some clear top-performing firms in organic revenue terms. It has been Mishcon de Reya’s decade – ranked 77th in 2006, turnover has grown from £29m to £132.7m – an increase of 358%. Others exhibiting striking organic revenue growth include Brodies (210%) and Stephenson Harwood (158%). Four regional firms that have not been part of consolidation during the last decade are the only firms to see revenue shrink during that period – Geldards (-13%); Maclay Murray & Spens (-8%); Walker Morris (-6%) and Bevan Brittan (-6%).
Interestingly, a handful of firms that have been involved in significant international merger activity between 2006 and 2016 and have seen turnover and headcount skyrocket, have fared less impressively in per lawyer metrics. While RPL, PPL and PEP have grown 48%, 62% and 43% respectively at Hogan Lovells, this rate of growth does not match the level shown by many organically grown firms in the LB100. PEP has suffered at Norton Rose Fulbright, down 12% from £445,000 to £392,000. The firms that tied up with major Australian players look to have suffered the most: while they are very different firms now, PPL at Herbert Smith Freehills is only up 13% in ten years, and PEP is essentially flat – £842,000 in 2006 to £838,000 this year. At Ashurst, the picture is worse: while RPL is virtually unchanged at £312,000 compared to £310,000 in 2006, PPL is down nearly a quarter to £97,000 from £127,000 and PEP has fallen by almost £100,000 – down 14% to £603,000 from £701,000. Proof that while these firms insist globalisation makes strategic sense long term, the bottom line can tell a different story.
2006
Total revenue: £10.8bn
Total profit: £3.52bn
Lawyers: 42,827
Equity partners: 6,551
RPL: £252,000
PPL: £82,000
PEP: £537,000
2011
Revenue: £15.5bn (+44% on 2006)
Profit: £4.65bn (+32%)
Lawyers: 51,146 (+19%)
Equity partners: 7, 376 (+13%)
RPL: £303,000 (+20%)
PPL: £91,000 (+11%)
PEP: £630,000 (+17%)
2016
Revenue: £20.19bn (+30% on 2011; +87% on 2006)
Profit: £6.39bn (+37%; +82%)
Lawyers: 62,214 (+21%; +45%)
Equity partners: 9,141 (+24%; +40%)
RPL: £325,000 (+7%; +29%)
PPL: £103,000 (+13%; +26%)
PEP: £699,000 (+11%; +30%)