LB100 City Domestic – A Tale of Two Cities

It was the best of times. It was the worst of times. In a year where eurozone turbulence rocked the continental market and wider global growth failed to meet forecasts, being a solely UK-based firm seemed like a good bet.

Well, for some at least. Variability has always been a feature of the London peer groups as the main players can straddle very different markets. So in the name of healthy competition, this year sees the introduction of the City Domestic and City International peer groups to the LB100.

Formed out of the previous Major City and London Midsizers groups, the aim is to try to improve standardisation. This City Domestic peer group brings together those City-based firms in the LB100 that derive almost all of their revenues from London offices.

Even now though, it’s still a mixed bag of firms, ranging from the highly profitable City outfits such as Macfarlanes and Travers Smith to West End specialists such as Howard Kennedy. While Travers Smith might argue that it shares more in common with Slaughter and May than Stewarts Law, this peer group is a simple list of London-only (or mainly London) firms, without overseas revenues skewing the overall picture.

The general theme is one of growth above inflation. Sixteen firms, 64% of the peer group, have achieved a revenue increase of 6% or more, with almost half of the peer group recording double-digit leaps in turnover. On the other hand, 20% of the group saw static or negative growth.

Highlighting the headlines behind the figures is a study in generalities. Firms with a strong private client practice (particularly, Mishcon de Reya, Forsters and Penningtons) by and large fared better than those without. Firms with a focus on dispute resolution, such as Stewarts Law and Kingsley Napley, generally recorded stronger turnover growth than those hedged towards transactional work. However, corporate finance powerhouse Travers Smith recorded the fifth-highest growth in the group with a 16% jump in turnover to £83.8m, so it’s by no means a one-size-fits-all approach.

One theme is patently clear: there is a tendency among the players in this group to try to do too much. Those firms that have seen the biggest slides in revenue over the past five years have tried to set their stalls as being full service: Nabarro has a compound annual growth rate (CAGR) of -2% over the past five years; Howard Kennedy has seen turnover shrink by an average of -7% over five years; and LG’s CAGR is -3%.

If your bottom line is persistently meagre, you need to take steps to improve it. Management boards would do well to take a lesson from some of the most consistent firms in the group. And those most impressive firms have achieved success by being known to be very good at just one or two things.

LB’s Law Firm of the Year in 2012 and private client specialist Mishcons saw turnover swell by 12% in 2011/12, giving it a five-year CAGR of 13%. This year’s success was underpinned by a 12% increase in litigation revenues and a 27% increase in real estate. ‘We’ve always steered away from this full-service offering concept. You can’t be all things to all people and be the best at what you do,’ says Kevin Gold, managing partner at Mishcons. ‘That’s why there have been many times where we have collaborated with colleagues in other firms who are just better than we are in a particular practice or niche area. As a result of that policy, one of the real growth areas for Mishcons has been instructions from other firms.’

Notably, Gold cites the growing presence of foreign firms in London as a real boon to work flow, particularly US firms that simply aren’t as strong in some of the areas that Mishcons excels in.

‘The role of the independent in London is becoming an interesting one, especially when you’re an independent with an amount of substance behind you,’ says Gold.

It’s a role that Stewarts Law is also finding fruitful. The litigation boutique has had another storming year: turnover is up 22% to £34.9m, while net income is up 34% to £15.5m, awarding the firm an enviable 44% profit margin – the second-highest in the peer group after Sacker & Partners’ 49% and the fourth-highest in the LB100. Similar to Mishcons, referrals are becoming an increasingly valuable source of instructions.

 

 

‘We’re rapidly becoming the conflict-free safe haven of litigation referrals,’ says John Cahill, managing partner of Stewarts Law. ‘That’s something that is important to us – developing that status so that City law firms and other major law firms feel that we are a first choice referral partner.’ Over the past financial year the firm has opened offices in New York and Delaware with a focus on investment protection litigation to capitalise on those growing links.

‘The new offices are part of a very specific project focusing on securities and corporate litigation, which is centred in the chancery courts in Delaware (or New York for securities litigation),’ says Cahill. ‘It’s an area in which we are often instructed by US lawyers in the UK and it seems quite natural for us to contemplate advising US and European investors on litigation in the USA.’

In addition to litigation and private client, the year also belonged to TMT specialists. Lewis Silkin posted a steady 10% rise in gross fees to £39.1m, while Bristows posted the biggest organic revenue hike of any City Domestic firm (Penningtons’ 34% increase came on the back of mergers with London firms Wedlake Saint and Dawsons in May 2011 and Wedlake Bell merged with Cumberland Ellis in 2012). In a groundbreaking year for Bristows, the London stalwart saw its top line swell by 27% to £32.9m, while net income leapt 53% to £13.8m – by far the highest organic profit increase in the LB100.
Generally speaking then, the firms that have shone over the past year have been firms that have eschewed a jack-of-all-trades approach.

‘There are a number of successful models that firms can employ. Our model is to have a few areas of focus which we work hard to be well known for,’ says Ian Jeffery, managing partner at Lewis Silkin. ‘That’s not the only successful model: among the largest firms the true Global Elite model is very successful and several of the national or regional firms also have models that work well for them. There probably are quite a few firms caught in the middle, by which I mean the ‘mid-size’ general commercial firms, that are having to do some quite hard thinking about where their future positioning is.’

Midsize firms take note: without a prominent international platform, sticking to what you’re good at is paramount. LB

maria.jackson@legalease.co.uk