Smaller regional and national firms have gained ground on their London rivals in this year’s Legal Business 100 (LB100) after years of the productivity gap widening in favour of the City. And, as some of the strongest performers from the 32 regional firms in the 51-100 bracket have shown, a big part of the shift has come from a growing trend of partnering up with law’s global elite to effectively provide northshoring outposts for blue-chip clients.
Following a muted period and just 1% growth last year, the group’s collective revenue rose a solid 7% to £1.36bn in 2018/19, for an average revenue of £42.4m. The productivity per capita at regional firms, traditionally weaker than London counterparts, also grew where City firms lagged this year, closing a gap that had been steadily widening. Revenue per lawyer climbed 9% to £197,000, compared to an almost flat £267,000 in London. Profit per lawyer stayed flat at £38,000, against £78,000 in the City, which was down 6%. Profit per equity partner (PEP), however, slid 5% to £339,000.
Many of the larger regional firms see the City mid-market as direct rivals, while a suite are picking up talent from the national and global law firms that are perceived to have turned their backs on the regions. Large private equity outfits are picking up cheap assets, driving a boom in corporate activity, but most law firms are equally preparing for a downturn as economic and political uncertainty weighs heavily, particularly in real estate.
Northern lights
It was a year of mixed fortunes for Scottish firms, which hit the buffers in terms of year-on-year growth in 2017/18. Brodies, the largest Scottish independent, has jumped into the UK top 50 with a 12% increase in revenue to £76.9m. However, its main competitors, Burness Paull and Shepherd and Wedderburn, are still in the second 50, after turning in more muted financial results. All three had grown by 49% between 2013 and 2018.
Burness’ revenue rose a sluggish 2% to £58.5m in 2018/19, suppressing its five-year growth track to 26%. PEP fell 9% to £433,000, with a slow first half in two of the firm’s biggest markets – oil and gas and commercial property – heavily affecting the performance. ‘With the oil price stabilising, it’s taken longer than we and the market had predicted for that to flow through to investment,’ chair Peter Lawson says. ‘Real estate clients, similarly, have been up front with us in terms of saying they’re holding off investment until the whole situation is clarified. These are big bits of our business, impacted by a combination of political and economic uncertainty.’
Shepherd and Wedderburn, by comparison, fared a little better: its revenue rose 4% to £55.7m, while PEP rose 3% to £415,000. Over the last five years, the firm has grown by 45%: just behind Brodies’ trajectory and narrowing the gap with Burness. Andrew Blain, who succeeded Stephen Gibb as managing partner in May this year, says the firm’s energy sector group, particularly in renewables, performed strongly. It also opened small outposts in Singapore and Dublin in 2019, the latter in response to Brexit. He comments: ‘In recent years, we have seen work for international clients grow considerably and our lawyers are supporting clients in more than 120 jurisdictions outside the UK.’
‘We are on the front foot. We’re now adopting a far more progressive and bold approach.’
Nik White, Brabners
Elsewhere, listed law firm Knights is reaping the benefits of its £50m initial public offering in mid-2018, acquiring firms across the regions and bolstering revenue 21% to £52.7m, while net debt fell to £14.1m from £26.3m.
The firm anticipates a further four acquisitions of firms up to £10m in revenue this financial year. Its post-IPO spending spree has included Manchester-based firm Turner Parkinson; Leicester’s largest law firm, Spearing Waite, in an £8.5m deal; and employment specialist Cummins Solicitors in the same city.
Manchester-based JMW Solicitors similarly enjoyed another strong year, adding 18% to its top-line for a turnover of £38.3m. The firm has invested in a new London base that is expected to contribute £5m in revenue next year, with 20 partners joining. Its family team also grew revenue 134% to £4m following recruitment from DWF.
Brabners’ revenue was up a steady 5% to £33m, with PEP up 6% to £292,000. The firm invested around £1.8m in new partners and restructuring costs during managing partner Nik White’s first year in charge, including eight internal promotions and 12 lateral hires.
‘We are on the front foot and seeking to grow,’ he says. ‘Last year was, first and foremost, about demonstrating the firm is still in safe hands and I’m not some loose cannon. But on the back of the generational shift and succession we’ve been through, we’re now adopting a far more progressive and bold approach.’
Another northern standout was Walker Morris in Leeds. The firm’s revenue grew 12% to £49.1m as PEP climbed an impressive 23% to £593,000 – good for 46% growth over the last five years. Managing partner Malcolm Simpson, who was elected last year, says the firm has been driven by an active private equity client base and US clients picking up cheap assets because of the weakness in sterling. The firm has for nearly five years had relationships with multiple US and Magic Circle firms in London, providing a northshoring arm on large transactions for the likes of Willkie Farr & Gallagher, O’Melveny & Meyers, Slaughter and May, and the world’s largest law firm, Kirkland & Ellis.
‘With Kirkland for example – which we work closely with – it doesn’t have a real estate practice so we are effectively that practice for the firm, handling some very, very, large transactions in real estate and the pensions and the labour law support on those deals,’ he says. ‘Slaughters too – not because it doesn’t have the practice but because it just isn’t the economic model for clients anymore. Those relationships are going from strength to strength.’
Southern stars
A bubbling south of the UK was yet again led by a strong year from Cripps Pemberton Greenish in Kent, which this year expanded in London through merger, as well as East Anglia’s Birketts and Foot Anstey in the South West. Providing cheaper cost bases with proximity to the City was again a source of growth, while another listed law firm that operates a flexible lawyer model, Keystone Law, grew rapidly.
Cripps and London’s Pemberton Greenish completed their merger on 1 December 2018, creating what should become a £45m firm with 64 partners, following about 18 months of talks. Cripps’ revenue rose 16% to £36.8m last year, with PEP dropping to £203,000 from £313,000 as a result of the investment in both the merger and new IT systems to bring the two firms onto one platform. Managing partner Gavin Tyler says about 40% of legacy Cripps’ turnover had come from clients with a London postcode. It spoke to 15 to 20 potential merger partners but landed on Pemberton Greenish because of its private wealth and landed estates practices.
‘Over the last two to three years, our part of the market has been doing alright. For anybody in the £15m to £50m bracket, it’s not been bad so long as they are investing in modernising their businesses. That said, the next 12 months will be harder than the last 12. There will potentially be more merger activity out there – after ours we were approached by another £25m-£30m firm.’
‘Real estate clients are holding off investment. These are big bits of our business, impacted by a combination of political and economic uncertainty.’
Peter Lawson, Burness Paull
Keystone, which has grown to nearly 300 principal lawyers across the country, saw its revenue rise by more than a third to £42.7m in its first full set of financial results since becoming the third UK law firm to float in late 2017. Its net profit before tax also rose a strong 57% to £5.1m. Its platform works by recruiting senior lawyers, called principal lawyers, who contract to Keystone, with many recruits attracted to the firm’s flexible working ethos and ability to keep 75% of fees earned. The firm has enjoyed a stronger-than-expected recruitment period, with accepted offers by principal lawyers increasing 7% to 63, on the back of 249 applications over the year.
Meanwhile, Foot Anstey has been going great guns over the last five years, with revenue up 72% over that time to £47.2m in 2018/19: one of the ten-fastest growth rates across the LB100 (see case study). PEP has also grown 52% since 2014, up a further 8% to £400,000 this year.
Similar to Walker Morris, the firm has benefited from an active private equity client base – up 85% this year – and from the rise of co-counselling with Magic Circle and major City firms on client projects. ‘Co-counselling is a really important model, general counsel are looking for their advisers to collaborate and work together,’ managing partner John Westwell says. ‘That’s come on the radar in the last year. Working in teams alongside major London firms can deliver projects where there is value in every element of it.’
Birketts has also impressed again, with revenue up 14% year-on-year to £54.4m and PEP up 11% to £372,000. Revenue and PEP are also up 72% and 47% respectively over the last five years. Chief executive Jonathan Agar, who joined at the beginning of the run in 2013, says corporate, property services and private client are enjoying strong momentum. The firm is distributing £1.3m in bonuses to its staff as a result. He says the firm is now looking to add different strings to its bow after a period of growth, contemplating both a small London office and gaining market share as smaller regional firms face difficulty with succession.
‘Locally the firms with a plan are going well, the firms without a plan are finding life hard. It’s not exactly rocket science, is it? We still see growth in our markets, we’re a very diverse business and we see lots of opportunity to grow. That’s a feature of the regional economy in East Anglia, it’s a feature of our proximity to London – clients are finding that just paying top dollar for everything out of London is no longer sensible.’ LB