With initial post-referendum Brexit shock giving way to pre-breakaway uncertainty, the boutique and mid-market London firms in the second half of the Legal Business 100 are maintaining a brave front in the face of political and economic uncertainty.
Overall the story is encouraging for London firms in the second 50, with total revenue up 6% to £774m, with an average revenue of £40.7m across the 19 City firms in the second – the same number as last year. Average profit per equity partner (PEP) spiked by 12% to £409,000.
But what goes up sometimes comes down, as disputes specialist Stewarts discovered after revenue plunged by more than 20% for the 2017/18 financial year, returning the firm into the second 50 after surging to 47th spot last year.
Turnover dropped from £77.9m to £62.4m, while PEP fell by 28% to £1.4m. For Stewarts the results bring three consecutive years of double-digit growth to an end, disappointing even taking into account the particularly successful year the firm enjoyed in 2016/17, when it recorded a striking 25% increase in turnover and a 19% upturn in PEP as the firm romped into the top 50. But the disputes-only focus of the firm means that swings in recovered contingency fees can turn a good year into an excellent one easily, and vice versa.
Stewarts has still recorded a 38% jump in turnover over a five-year period, with PEP increasing 22% over the same timeframe, with the longer-term picture looking more robust, while its remuneration structure means the top of the equity will bring home far more than its direct competitors. Indeed, with a PEP of £1.4m, Stewarts’ drop back into the bottom 50 helps in part to explain the jump in average PEP across the group.
But among those 19 City firms, there are outliers of all kinds. Lewis Silkin managed to achieve growth of 18% with turnover increasing from £44.9m to £52.9m, while Harbottle & Lewis (see case study) posted a turnover of £35.5m, up 26% from last year.
For Lewis Silkin, the leap forward in revenue and profit comes despite the firm’s headcount and partner numbers remaining steady. The figures are something of a rebound, with the firm recording an 18% decrease in PEP last year after a restructuring of the partnership, however, the firm has more than turned that deficit around, with PEP up 42% from £210,000 to £298,000, making it the fastest-growing LB100 firm this year in terms of partner profits. However, it is still 13% lower than it was five years ago, making Lewis Silkin the joint worst-performing firm for PEP since 2013.
‘We are cautious about expanding overall numbers and headcount,’ notes managing partner Ian Jeffery. ‘But what we have seen is that activity levels have picked up significantly.’
According to Jeffery, the uncertain climate has generated work in of itself, with businesses looking to restructure in light of large political and economic upheaval, a stark contrast with last year when the firm cited a rebranding initiative and Brexit as responsible for the firm’s flat turnover.
‘My sense would be it’s not just back to business as normal, but that things have accelerated to get business and transactions done before any major changes take place,’ he adds.
Meanwhile, Forsters – which has for the five previous years been something of a bellwether for the group and the UK market as a whole, often the first to release financials – found itself on the receiving end of an unwelcome trend – the slowdown in the London real estate market. Although the firm registered 7% top-line growth – an improvement on 4% last year – the figure comes against a 12% increase in lawyers.
‘On the real estate side we’re quieter,’ concedes managing partner Paul Roberts. ‘We’re marginally behind where we wanted to be last year.’
‘It’s not just back to business as normal, but things have accelerated to get business and transactions done before any major changes take place.’
Ian Jeffery, Lewis Silkin
The lethargy in the real estate market is partly Brexit-induced, however, many point towards the significant impact of Stamp Duty Land Tax as another inhibiting factor. However, Forsters has seen growth in other practice areas, with the firm’s private wealth practice growing by 33% compared to 25% the previous year.
The real estate malaise has also been noticed by Bates Wells Braithwaite (BWB), with turnover growth staying at 8%, the same as last year.
‘Brexit gave a slow start to our real estate year,’ says managing partner Martin Bunch. ‘Clients aren’t any more knowledgeable, but they just had to get on with it.’
BWB will hope the hire of Malcolm Headley from Gowling WLG to its real estate team will strengthen the practice, while key bank panel wins in Metro Bank and Lloyds were among the positives over the last 12 months, as well as acting on a pro bono basis for Uber workers.
Not all real estate-orientated firms suffered a slowdown, however, as Howard Kennedy seemingly bucked the trend by recording a 25% increase in fee income for the first quarter, with growth expected for the rest of the financial year.
Boutique firms remain close to their specialisms and for some the gains are marginal, with pensions specialist Sacker & Partners just about returning to growth, registering a total revenue of £27m, up 1% from the £26.7m posted last year. The firm maintains the biggest share of the pensions market, while coming up against Magic Circle and national players.
‘The trends that affect us are what’s happening in pension schemes more than the trends affecting the legal market,’ says senior partner Ian Pittaway. ‘Brexit as such doesn’t impact on us, but it impacts on our clients and if their businesses are struggling, they’re not focusing on their pensions.’
While clients are still keeping their powder dry in general, there is a sense in the market businesses have begun to build confidence.
‘In June 2016 we saw clients sitting on their hands,’ notes Wedlake Bell’s managing partner Martin Arnold, ‘but that has changed and they are returning to the market.’
Wedlake Bell also recorded virtually no growth in turnover, moving from £33.9m last year to £34m this year, while PEP fell to £356,000 from £372,000 the previous year, despite profits being distributed among 16 full equity partners, two fewer than in 2017.
Fladgate, for its part, has continued its strong run of growth, being joined alongside Forsters, Stewarts, Sackers, Harbottles, and Farrer & Co as the six London firms with PEP over £500,000, further signalling the wealth gap between City and regional players (see ‘Comfortably numb’), while also scoring a total revenue of £53m, up almost 8% from £49.2m last year. However, the firm was not immune to the real estate slowdown, with growth having to come from other, more stable practice areas.
‘Real estate moved ahead only a little bit,’ says chair Richard Reuben. ‘The growth in the firm came from corporate and litigation.’
Meanwhile, one of the most significant differences for firms in the second 50 this year is the increasingly mainstream trend of firms listing, with Gordon Dadds in particular making significant strides up the table with a number of acquisitions since listing last summer.
‘Noticeably it’s more of a trend, but it’s a long way short from a structural change in the industry,’ says Jeffery, a sentiment shared by James Knight, chief executive of Keystone Law, which took the decision to float last year.
‘Normally firms list to spend on growth, or because of an exit from a primary shareholder,’ he says. ‘Interestingly the first firm to do it was Gateley, which was a very solid conventional firm but not sexy firm; normally firms who list are like us and a little less conventional.’
Gordon Dadds has increased its headcount by 52% following a spree of acquisitions since the float, with the firm now the fastest-growing in the wider LB100 in terms of revenue. The 36% increase in turnover saw it break the £30m mark in its first results since the public listing, reaching £31.2m.The firm also acquired five businesses in the last financial year, including the tax advisory business CW Energy in a £4m acquisition, while profits before tax were up 23% and operating profits, including partner shares, hiked by 19% to £8.8m. The firm also launched its first international office in Hong Kong.
For now there is a feeling of impatience among firms and clients alike in the City, with Brexit uncertainty causing a lull in some areas and an uptake in others, though the initial post-referendum hyperventilating has passed as clients dip their toes back into the market. Meanwhile, older trends are joined by more nascent ones, as City law increasingly looks to AIM for new growth strategies.
Overall, London’s staying power as a legal and financial hub continues to impress and provide for City firms in the second 50, though in the ever-present saga that is Brexit, it is still very, very early days. LB
thomas.alan@legalease.co.uk
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Fastest-growing firms in organic revenues 2013-18
| Firm | 2013 | 2018 | % change |
|---|---|---|---|
| Fieldfisher | £95m | £207m | 118% |
| Osborne Clarke | £112.8m | £239.6m | 112% |
| Freeths | £40.6m | £78.9m | 94% |
| Fladgate | £28.2m | £53m | 88% |
| Mishcon de Reya | £88.4m | £161.3m | 82% |
| Foot Anstey | £24.2m | £43.3m | 79% |
| Macfarlanes | £114.2m | £201.6m | 77% |
| Ashurst | £323m | £564m | 75% |
| Travers Smith | £86.2m | £146.9m | 70% |
| Stephenson Harwood | £112.3m | £189.4m | 69% |
Slowest-growing firms by revenue 2013-18
| Firm | 2013 | 2018 | % change |
|---|---|---|---|
| Thompsons† | £79.5m | £62.3m | -22% |
| Hill Dickinson | £112.8m | £96.8m | -14% |
| Ince & Co | £93.2m | £83.4m | -11% |
| Walker Morris | £42m | £43.7m | 4% |
| Brabners | £30m | £31.4m | 5% |
PEP: 20 fastest-growing firms 2013-18
| Firm | 2013 | 2018 | % change |
|---|---|---|---|
| Howard Kennedy | £129,000 | £284,000 | 120% |
| Fladgate | £406,000 | £819,000 | 102% |
| DAC Beachcroft | £283,000 | £528,000 | 87% |
| Fieldfisher | £398,000 | £728,000 | 83% |
| Shoosmiths | £239,000 | £429,000 | 79% |
| Macfarlanes | £985,000 | £1,743,000 | 77% |
| Bevan Brittan | £255,000 | £438,000 | 72% |
| Pinsent Masons | £387,000 | £659,000 | 70% |
| Clarke Willmott | £141,000 | £232,000 | 65% |
| Foot Anstey | £224,000 | £369,000 | 65% |
PEP: 20 fastest-shrinking firms 2013-18
| Firm | 2013 | 2018 | % change |
|---|---|---|---|
| Kingsley Napley | £409,000 | £335,000 | -18% |
| Capsticks | £437,000 | £380,000 | -13% |
| Lewis Silkin | £344,000 | £298,000 | -13% |
| Ward Hadaway | £322,000 | £300,000 | -7% |
| RPC | £372,000 | £348,000 | -6% |
| Weightmans | £294,000 | £278,000 | -5% |
| BLM | £224,000 | £213,000 | -5% |
| Sacker & Partners | £781,000 | £747,000 | -4% |
| Bristows | £438,000 | £428,000 | -2% |
| Kennedys | £407,000 | £401,000 | -1% |