LB100 City International – New Frontiers

For this year’s LB100, we have a new peer group: City International. This group comprises firms that have leading practices in the City but also have a strong international practice, deriving a healthy proportion of their income from offices outside the UK.

All the firms in the peer group have posted increases in turnover and, barring a few, increases in average revenue per lawyer (RPL). Many firms have bolstered revenues by merging or opening new offices in buoyant markets such as the Middle East and Latin America. Thirteen of the 17 firms in this peer group opened one or more new offices last year. However, for some firms the expansion has come at a price in profit per lawyer (PPL).

Clyde & Co’s significant appearance in this peer group comes by virtue of its game-changing merger with Barlow Lyde & Gilbert last year. The merger has seen the firm’s revenue rise the most in the group, 35% to £287m, somewhat short of the £307m combined turnover of the two firms last year but the merged entity is a few months short of a full year as one firm. But there is a downside – the investment has had a net effect on average partner profits, with PEP down 8% on the £605,000 Clydes posted last year.

The group is headed by Herbert Smith and Ashurst, which was the largest firm by revenue in our old Major City group. With a profit margin of just 23% and a RPL of £344,000 Herbert Smith does not compare favourably with the Global Elite firms : it is well short of the average RPL of the Magic Circle, which is £494,000. The firm’s PPL is £79,000, which is eclipsed by nine firms in this group and well short of the Magic Circle’s average PPL of £211,000.

 

 

‘The reason our profits are down is because we’ve been trying to invest in our global network. Our ambition is to be up among the premier firms serving the world’s elite clients,’ says David Robinson, chief operating officer of Herbert Smith. The firm is certainly on the expansion trail, with planned offices in New York and Seoul, and its recently announced merger with Australian firm Freehills could galvanise the firm to come back stronger next year.

Across the group, market conditions have affected most firms, although average profit margins swelled by two to three percentage points on last year. Dealflow is way down but firms with a strong disputes practice, such as Herbert Smith, Taylor Wessing and Holman Fenwick Willan have been able to counter the recession to some extent. Disputes make up 41% of Herbert Smith’s turnover, 30% of Taylor Wessing’s and a massive 83% of Holman Fenwick Willan’s revenues.

According to managing partner James Collis, the source of Ashurst’s revenue has changed significantly in four years. In 2008 70% of the firm’s revenue was UK-based but by 2012 this had fallen to 57%. ‘Almost half our revenue comes from outside of the UK and that’s excluding Ashurst Australia,’ says Collis.

The firm’s tie-up with Australian firm Blake Dawson, announced towards the end of 2011, should push up the firm’s non-UK revenues by 2012. Ashurst’s worldwide revenue has increased 6% year on year, without taking into account Blake Dawson. The firms combined their Asia practices in March and Blake Dawson became Ashurst Australia at the same time.

The firm’s performance has also pleased Ashurst’s finance director Nigel Morland, who says: ‘We’ve been pleased that we’ve had a steady improvement in the year and I think that in the context of what you’re seeing out there it is extremely positive.’

Ashurst’s PPL is £116,000, topping the group by some margin. Taylor Wessing comes in second with a PPL of £99,000.

Just two firms in the peer group posted a fall in average RPL this year: Kennedys, which moves from our now defunct Insurance peer group, and Watson, Farley & Williams. Kennedys, which enjoyed a number of years of stunning growth during the downturn has also posted a double-digit fall in PPL against a 13% growth in revenues. However, this can be explained by a 21% rise in the number of fee-earners at the firm and a 6% increase in equity partners. The firm has far more mouths to feed – almost 100 lawyers – including the addition of Dublin associate O’Hare O’Connor Walshe.

Olswang’s RPL is up by 17% year-on-year, although its PPL is down by 3%. However, the firm’s cost per lawyer has risen 17%, clearly impacting profits. The firm has invested significantly in 2011/12, opening an office in Singapore last year, while counting the revenues of its new Munich and Paris offices for the first time. However, the number of equity partners at the firm is down 26% to 41, which goes some way to explain the firm’s 30% increase in PEP.  

With an impressive client list, including Vodafone which appointed the firm to its panel for the first time last year, Olswang chief executive David Stewart doesn’t see the need for any drastic action, such as a merger. ‘We wouldn’t rule out any option, but a successful merger will only work if there is a clear strategic plan, maybe to acquire geographical reach, or greater scale and depth in growth areas,’ he says. ‘Those firms that have simply cuddled together for bodily warmth to escape the chill of the recession may well live to regret the lack of a clear strategy to engage and motivate their people to work through the distraction and temptation to focus on internal issues that mergers can produce.’ LB

david.stevenson@legalease.co.uk