For the 23 City and boutique firms that fall into the second 50 in this year’s LB100, average turnover is up 11% to £53.4m, marking the largest growth across all groups.
‘A couple of years ago people were saying it was the death of the mid-market. We don’t buy that. We think that the mid-market is alive, strong and kicking,’ says Fladgate’s managing partner Grant Gordon.
For those mid-size City firms and boutiques occupying the 51-100 bracket, an average increase in turnover doesn’t tell the full story. With average lawyer numbers up 11% to 199 lawyers from 179 last year, revenue per lawyer fell 1%, meanwhile profit per lawyer was down 4%. Profit per equity partner (PEP) is also down 3%, despite average equity partner numbers remaining close to last year at 28.
As the most mobile section of our top 100, the group has undoubtedly been impacted by new entrants and exits, and as such changes to their average performance are to be taken lightly. One such exit saw litigation boutique Stewarts rise into 45th position after a 43% revenue boost up from £79.7m to £113.8m, which the firm impressively combined with a 93% hike in PEP.
Drilling down into individual firm performance is where the real narrative can be seen. Gordon, for example, has reason to be assured of the mid-market’s resilience, after Fladgate had the largest revenue increase of the second 50, up 32% to £67.4m from £51.1m last year. This saw it progress to the 62nd spot. Across the top 100 firms, it is second only to Stewarts for revenue growth. Fladgate also reported the second-highest PEP of the bottom 50 with £895,000, second to Sacker & Partners which broke the £1m barrier.
This marks a return to form for the firm after a 9% revenue fall last year. Says Gordon: ‘When the lockdown happened, there was an immediate cessation of activity and, being very transaction-orientated as a firm, that’s why we didn’t have a great 2020/21. But I’m glad to say that for 21/22, things bounced back quite radically. I have to be honest, it has been better than we expected, but happily so.’
‘The areas that had a strong rebound were everything that had been most severely impacted at the time of March 2020.’
James Knight, Keystone
The firm is also seeing its growth strategy paying off, following the hire of 10 laterals in 2020 and the same again in 2021. Gordon expects the firm’s bullish growth strategy to continue: ‘Like all businesses if you’ve had a year of big growth, it should be well advised to stop and digest a little so as to not lose the culture, which is something everyone goes on about. But you just have to absorb people, get people in the same direction and buying into the strategy.’
Keystone turned in the second-strongest performance among the second half of the table, up 27% for the full year to January 2022, significantly outpacing its 11% revenue increase last year. This brought turnover to £69.6m, elevating the firm nine places to 60th position. The firm also ascribes these gains in part to the recovery of the market, says managing partner James Knight: ‘We do quite a lot in the hospitality area, so that has had a strong rebound. The areas that had a strong rebound were everything that had been most severely impacted at the time of March 2020. That was very much the conveyancing side and the transactional side, whether it’s M&A or property.’
However, despite hiring 41 principals (partner equivalents) over the last financial year, overall principal numbers sat at 399 as of July 2022, up only 13 (3%) from 386 in July 2021, for which Knight blames on the much-touted tussle for talent, which he expects to change as market conditions adjust to the economic headwinds: ‘Over the last two years, we’ve seen an incredibly competitive recruitment market. We have still recruited more partner-level individuals than any other law firm in the country, but it’s much less than we would have expected. But the conditions are going to change and the recruitment market will not be as challenging. The less other firms recruit, the more we do, so we are sort of countercyclical in that respect.’
Keystone’s half year results up to 31 July 2022 paint a sanguine picture for the year ahead, with revenue up 9.3% on the same period last year to £36.8m.
Another testament to the alternative business model, gunnercooke, enters the LB100 for the first time with revenues of £48m. The firm reports growth of 51% for the last financial year, partly as a result of opening new offices, including in New York which it launched in April 2022. Says executive chairman Darryl Cooke, who has ambitious goals for the year ahead expecting to reach £100m in revenue by the end 2023: ‘The firm was begun as an antidote to PEP and PPP, which we believe is very damaging to the industry of law. Lawyers are responsible for their own lives and their own earnings. That has led to over 95% of our lawyers earning more than they did before and their earning potential is unlimited. It has also led to very happy lawyers.’
Meanwhile, Lewis Silkin has had a redemptive year, following up a lacklustre 3% revenue rise in 2021 with the fifth-highest revenue growth among the bracket in 2022. It bolstered both its turnover and headcount this year with an 18% revenue hike and 25% partner increase up from 59 to 74. A lot of this investment has been in Belfast, where it launched in 2021 following its tie up with local employment law specialist Jones Cassidy Brett, later combining with media, tech and IP practice Forde Campbell in January 2022.
Richard Miskella, who is joint managing partner alongside Giles Crown, credits both the market conditions and the firm’s strategy, based around its five key practices, for this improvement. ‘The whole legal sector has had a really good few years so we can’t take all the credit! What we can take the credit for though is really clarifying and sharpening our message. The mid-sized law firms are under increasing pressure, and if you aren’t distinctive, you will die. We’re fiercely independent and want to focus on our own destiny.’
‘The mid-sized law firms are under increasing pressure, and if you aren’t distinctive, you will die.’
Richard Miskella, Lewis Silkin
The firm started this year on an ambitious note with the launch of its Manchester office in September. Looking forward, the firm’s sights are set on doubling down on its key areas, according to Crown: ‘We don’t have a strategy of getting into the top 50; we have a strategy of getting good people in the UK and Ireland. We want to be a big player in some of our core areas, and market-leading across IP, commercial, corporate, data and disputes.’
Similarly, Harbottle & Lewis’ focused investment is paying off. It recorded one of the steepest five-year revenue growths among the second 50 with a 73% hike – despite a steady 8% increase this year.
Charles Leveque, who took over as managing partner from Glen Atchison who left the firm in June 2022, says: ‘Over the last five years in particular, we’ve had a number of additions join us, particularly lateral partner hires during that time. The Covid pandemic was in some ways brilliantly timed for us, in terms of us being able to consolidate and make those people feel very much part of the firm and embedded within the infrastructure. We’re pleased with the last 12 months and the growth that we saw in terms of revenue, in particular because of some of the odd circumstances.’
The firm continued to invest over the last financial year. Headline hires include the additions of Marianne Kafena and Zoë Camp in the private client practice and the launch of a technology, data and digital group with the arrivals of practice head Emma Wright, data privacy partner Anita Bapat and Rupam Davé, who brings adtech experience, from Deloitte. Of the tech team, Leveque notes: ‘Their arrival has really ensured that we can offer a much fuller service to big technology clients for whom we’ve traditionally provided other services on the IP and corporate side. Now we can actually get under the bonnet of what they do from a technology perspective.’
He concludes on an optimistic note, with consolidation and cross-practice collaboration at the centre of the coming year’s strategy: ‘We feel like there is a lot of latent potential that hasn’t yet been realised, partly because a lot of people have joined recently and partly because of Covid. Once we have focused on ensuring that people are communicating with each other in a way that allows them to exploit those opportunities, we will fly.’
Of the firms faltering in this bracket, perhaps the most eye-catching has been Ince. Before the full story of the firm’s current struggles came to light, its early unaudited results reported a 3% revenue decrease, which it chalked up to the war in Ukraine and a cyber-attack in March 2022 which cost the firm around £5m in damages. However, its full-year results have been postponed following months of reports of ongoing financial difficulties in the firm revealing it needed to raise £8.6m to avoid ‘financial difficulties’. This ongoing saga has culminated in Ince’s former chief executive Adrian Biles leaving the firm.
With a mixed bag of results, it’s clear that City and boutique firms falling into the second 50 are not out of the woods yet. With the upcoming anticipated recession and continued war for talent, the pressure remains on to push back against the mid-market squeeze in the coming year. LB