The story of last year’s Legal Business 100 (LB100) was the emergence of a group of mobile mid-tier outfits that were threatening to take the market by storm. For some, that has become a reality, with the pacesetting Fieldfisher surging into the top 25 on the back of another stellar year. For those it left behind in the 26-50 bracket, the going has been generally tougher.
Despite a modest 5% jump in average revenue to £122.6m for the mid-market cohort, there was a 3% slump in average profit per lawyer to £65,000. Average revenue per lawyer also slipped 2% to £267,000, although there was a 3% rise in the average profit per equity partner (PEP) figure to £501,000.
Overall, unimpressive. Especially considering that some of the fastest-growing firms in the entire LB100, such as Kennedys, Macfarlanes and Travers Smith feature in this segment.
But for some, the 26-50 strata presented a new opportunity, thanks to the disappearance of Nabarro and Olswang this year following their tripartite merger with CMS. The beneficiaries of these freed-up slots were Freeths, Penningtons Manches and Shakespeare Martineau, although for the latter only a 3% revenue increase was required to break into the top half – a telling indication of the mid-market rather than a story of outstanding performance.
Stephenson Harwood returns to the second 25 after last year’s 12% revenue boost saw it sneak into 25th position. While this year’s 7% turnover rise is respectable, the firm’s 12% dip in PEP may have come as a disappointment.
However, not according to chief executive Sharon White, who insists the results come amid a time of major investment. The firm has relocated to larger premises in Paris and Beijing, and invested in new business roles, such as the newly-appointed head of innovation Paul Orchard. The firm also attributes falling PEP to an increase in partner headcount – Stephenson Harwood made eight internal partner promotions and nine lateral hires in the last year.
White says: ‘If you go back to Brexit day, if you had said to me that we would have the two-year results we’ve had since then, I would not have put my money on it. I am surprised, to be frank.’
Bullseyes
In revenue growth terms, far and away the top-performing firm of the cohort was Kennedys, which recorded a 31% rise in global turnover and 14% for UK income. Celebrations should be tempered by the fact that the results were driven by major geographic expansion, which led to a headcount increase of 20%.
‘Firms that have the same mix as ourselves will certainly see their profits in the insurance area down.’
Peter Jackson, Hill Dickinson
Perhaps a better benchmark comes from Macfarlanes, which grew its top line by a remarkable 20% to break the £200m barrier. Operating profit rose 25% to £107m and PEP was up 27% to £1.7m, higher than Freshfields Bruckhaus Deringer, the most profitable of London’s big four.
For senior partner Charles Martin, the successful year came off the back of strong performances in M&A, litigation, private client and investment funds work. ‘Some of the M&A is opportunistic, but a lot of it is very strategic,’ he says. The firm was certainly busy on the transactional side last year, advising US cinema chain Regal Entertainment Group on a $3.6bn takeover bid from Cineworld Group.
Another standout performance came from the ever-dependable Travers Smith, where revenues jumped by 18% to £146.9m. (For more on Travers’ year, read the firm’s case study.)
Under the radar somewhat was TLT, the regional firm propping up the lower end of the 26-50 bracket. But after a number of years of modest profit growth due to investment, the firm is starting to see some return.
As managing partner David Pester comments: ‘Our model is one where we have a series of years with different investments to get the expertise we need based on the industries we focus on. What was particularly noticeable about the year we have had is we increased our talent pool and depth of expertise. The scope and value of what we are working on has fed directly into the numbers.’
Pester’s assessment is correct: while TLT’s revenue has moved up 10% to £82m, its PEP has soared by 35% to £342,000, making it the fourth fastest-growing firm by PEP in the entire LB100 this year. Considering total lawyer headcount has also jumped 7% to 421, the results are particularly positive.
As a result of the investments, Pester says the firm now has a good balance of transactions and litigation, and hails the rising national and international footprint of the clients TLT has acted for. He points to the firm’s appointment to tier one on the central government legal panel as proof of its improved profile.
In comparable form was Legal Business Awards National/Regional Firm of the Year Shoosmiths, the similarly mobile national player also posting a 10% rise in revenues to £128m, building on 9% top-line growth in 2016/17. PEP also saw an above-trend increase of 19% to £429,000, despite a 17% rise in fee-earner headcount.
According to chair Peter Duff, the positive performance is attributable to the firm’s regional offices ‘starting to bear fruit’. In the Leeds office, for example, there was a 75% increase in headcount after a concerted investment in infrastructure and people.
Shoosmiths’ real estate division was up 19% in revenue terms, while there were similar jumps in commercial and corporate, which grew 17% and 10% respectively. Long-term prospects also look bright for the firm, after key hires were made throughout the year: experienced corporate partners Philip Goldsborough and James Foster swapped Irwin Mitchell for Shoosmiths’ Leeds arm, while Slater and Gordon’s family law head Caroline Watson made the switch in September.
Duff says: ‘It was a very pleasing year for us. We hit the marks we were expected to hit. It was a really strong overall performance.’
Other robust performances included Gateley, where revenue jumped 11% to £86.1m, and Penningtons Manches, where turnover rose 9% to £76.1m, seeing the firm edge into the top 50. A commendable feat when considering five years ago legacy Manches sat at 93rd while Penningtons occupied 82nd spot in the LB100.
Misfires
However, it certainly was not good news all round. Litigation specialist Stewarts had a weak year underlined by a 26% reduction in PEP and a 20% dip in revenues that sees it return immediately to the second 50 (see ‘London stalling?’).
Widely identified by many law firm chiefs as a major area of strain, the insurance-driven outfits had particularly challenging years. Hill Dickinson saw a 5% revenue fall amid a tumultuous year that saw it sell off its insurance division. As chief executive Peter Jackson accurately predicts: ‘Firms that have the same mix as ourselves will certainly see their profits in the insurance area down.’ (See case study.)
‘All the predictions of doom have not yet been realised.’
Chris Lowe, WFW
It was far from a vintage performance at Ince & Co, where revenues fell 6% to £83.4m against a backdrop of internal unrest. In August, senior partner Jan Heuvels stepped down just weeks after a wave of cuts in the London office saw 32 job losses, consisting of 25 business services staff and seven fee-earners.
Heuvels, however, points out that this year’s turnover is higher by 9% than in 2015/16 and highlights a 22% increase in international revenues over a three-year period. Heuvels himself was relocated to Hong Kong and chair Paul Herring transferred to Greece as part of this strategy. ‘Despite the current uncertainty in the global transport and trade markets, our latest financial results demonstrate the resilience of our firm,’ he argues.
One of the aforementioned ‘pistols’ of 2017’s edition, Watson Farley & Williams, also posted comparatively poor numbers this year. Revenue growth slowed from last year’s above-trend 21% rate to just 2% this time round and PEP took a hefty 18% hit, now £507,000.
Managing partner Chris Lowe points out that 2017’s numbers were record-breaking, and that half of the 20% increase came from currency fluctuations. It is also true that the firm’s partnership expanded after 11 lateral hires throughout the course of the year. ‘We are on budget and it’s what we expected,’ he says, adding that newer, audited results put revenue growth at closer to 5% rather than 2%.
It was also an uncharacteristically subdued year at Mishcon de Reya, both in terms of financials and in engaging with the media. Often the star of such aggregate revenue performances, Mishcon dropped in form with a 6% revenue increase in comparison to last year’s 14%. PEP also took a substantial hit, falling 9% to £1m.
Despite high-profile mergers in recent months, performance was also muted at Charles Russell Speechlys and Womble Bond Dickinson. The former saw revenue inch up 5% to £150.5m after its tie-up with sports boutique Couchmans in February. For the latter, only £1m was added to its top line after its June 2017 merger with US alliance partner Womble Carlyle Sandridge & Rice, bringing turnover up to £105m.
Into the breach
It could get worse for the mid-tier bracket if things turn against them, but there is some debate as to whether market forces are malign or not. On Brexit, Lowe contends that ‘all the predictions of doom have not yet been realised’, but concedes that the coming years may yield more impact: ‘Work could flow out of London into Europe, or there could be a continued growth of financial services and players in the London market, where one could imagine there might be a little less regulation.’
Pester adds: ‘There’s a concern about uncertainty. Just the lack of clarity could feed into markets. It’s difficult to predict what things will look like.’
Neil Smith, finance director and board member at Gateley, fears that the UK’s elite firms may leave the rest behind: ‘If clients are willing to pay their rates, they will get the large assignments. Everyone else is competing in a different market. The larger firms are moving away from the 26-50s.’
And it is not just danger from above; recent news of accounting giant EY’s purchase of alternative legal services business Riverview Law may have some mid-tier managing partners looking over their shoulders.
Pester comments: ‘It’s a relatively small acquisition but an interesting one. Competition is good for everybody, but it’s how you respond to it that defines your position in the market.’
On the back of an inconsistent year, with continued growth at the top end and increasing pressure from below, the LB100 mid-market has split clearly into those excelling and the drifting outfits struggling to stay in the game. LB
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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 Pinsent Masons and Eversheds Sutherland becomes apparent. CMS has seen a significant spike in UK revenue thanks to the addition of Olswang and Nabarro following the 2017 merger, while Addleshaw Goddard saw a significant uplift thanks to its acquisition of HBJ Gateley in Scotland.
| Firm | UK revenue (change on 2017 in brackets) |
|---|---|
| Linklaters | £660m (5%) |
| Allen & Overy | £615m (5%) |
| Slaughter and May | £547m (7%) |
| Clifford Chance | £540m 7%) |
| Freshfields Bruckhaus Deringer | £475m (6%) |
| CMS | £448.3m (81%) |
| Eversheds Sutherland | £390m (13%) |
| Herbert Smith Freehills | £375m (0%) |
| Pinsent Masons | £356.6m (0%) |
| DLA Piper | £340m (8%) |
| Clyde & Co | £297.7m (10%) |
| Hogan Lovells | £294m (4%) |
| Norton Rose Fulbright | £270m (8%) |
| Irwin Mitchell | £241.8m (3%) |
| Addleshaw Goddard | £228.3m (27%) |
| DAC Beachcroft | £217m (11%) |
| DWF | £204.5m (9%) |
| Macfarlanes | £201.6m (20%) |
| Simmons & Simmons | £198m (16%) |
| Ashurst | £192m (3%) |
| Bryan Cave Leighton Paisner* | £190m (-1%) |
| Gowling WLG | £165m (-4%) |
| Mishcon de Reya | £158m (6%) |
| Travers Smith | £146m (18%) |
| Taylor Wessing | £144.6m |
| Osborne Clarke | £139.3m |
| Fieldfisher | £135.6m |
| Charles Russell Speechlys | £135.2m |
| Stephenson Harwood | £128.7m |
| Shoosmiths | £128m |
| Kennedys | £118.9m |
| Bird & Bird | £112m |
| Mills & Reeve | £105.1m (13%) |
| Womble Bond Dickinson | £105m (1%) |
| BLM | £104.7m (-2%) |
| RPC | £97.6m (0%) |
| Weightmans | £97m (2%) |
| Burges Salmon | £90m (3%) |
| Hill Dickinson | £87.9m (-6%) |
| Gateley | £85.2m (14%) |
| Trowers & Hamlins | £83m (5%) |
| TLT | £82m (10%) |
| Freeths | £78.9m (10%) |
| Penningtons Manches | £76.1m (9%) |
| Holman Fenwick Willan | £74m (6%) |
| Shakespeare Martineau | £73.8m (3%) |
| Blake Morgan | £73.3m (-2%) |
| Withers | £71.7m (-2%) |
| Watson Farley & Williams | £66m (7%) |
| Ince & Co | £42.8m (-11%) |
* Legacy Berwin Leighton Paisner only