The 26 regional and national firms occupying the 51-100 places in this year’s LB100 come in with an average of 269 lawyers and 33 equity partners, a slight increase on last year. Average revenue increased 5% to £57.5m, three percentage points below the growth rate of the LB100 as a whole. This mirrors last year, where average revenue only increased by 4%, a departure from the 11% and 13% growth rates seen in 2020 and 2021 respectively.
More significantly, our 2023 report also sees a sharp decline in profit per equity (PEP) by 14% to £345,000, in a stark contrast to the 14% growth rate last year and a much heavier dip than that experienced by the LB100 at large.
Individually, there were some standout performances. RWK Goodman jumped up 11 places following a merger-induced revenue surge, thanks to the tie-up Bath-based Royds Withy King and City boutique Goodman Derrick in May 2022, reflecting a growing trend of consolidation within the legal sector.
Graham Street, who retains the position of managing partner in the merged firm, comments: ‘It’s been an exciting year for us.
At the beginning of the year we completed a merger with Goodman Derrick and we’ve been happily busily working on the integration over the year. We’ve been working on that operationally, financially, and strategically.’
South-East based firm DMH Stallard also completed its merger with Griffith Smith in March last year. Managing partner Richard Pollins says: ‘In recent years we’ve brought in some really good quality partners through merger and lateral hiring.’ This includes partner Graham Halsall who joined the firm in February from London-based firm Spector Constant & Williams and Joe Rovery, who joined from top-50 firm Knights in August 2022.
Discussing the firm’s plans over the coming years, he adds: ‘I’d like to think we will close at least one more acquisition or merger in this financial year and possibly one or two over the next couple of years. The mergers tend to be between about two and five million, so they’re smaller firms.’
The merger momentum continued, as April of this year witnessed Ipswich-headquartered firm Birketts sealing the deal with Kent and London-based Batchelors.
‘If you want growth, and you can’t achieve it through organic building and lateral hiring, and I think you can’t, you need to look for mergers.’
Mike Wilson, Blake Morgan
Mike Wilson, managing partner at Blake Morgan, who brought attention to the theme of consolidation in last year’s LB100 report, emphasises the ongoing significance of this trend: ‘Mergers have always got to be on the board agenda, and they are on our agenda, at all times. But it always comes down to whether the cultures match. If you want growth, and you can’t achieve it through organic building and lateral hiring, and I think you can’t, you need to look for mergers.’
However, Blake Morgan – itself the product of a 2014 merger between Cardiff-based Morgan Cole and Portsmouth-based Blake Lapthorn – is perhaps less of poster child for regional mergers. In revenue terms it is one of the worst-performing firms of the past five years, with its £61.3m turnover 16% lower than it was in 2018.
Aside from consolidation, Manchester-based JMW Solicitors, which was the strongest performer in the group last year, posted 12% revenue growth, albeit this represents almost half of its prior rate. Yet, the firm has been on a hot streak for several years, recording 129% growth over the past five years, with its London office, which debuted in 2019, standing out as a key driver by delivering a 15% boost in office revenue compared to last year’s figures.
Moving up two spots in the table, Foot Anstey reported a 14% increase in revenue and has broken the £60m revenue barrier, after surpassing £50m in 2021/22. Discussing the firm’s future, managing partner Martin Hirst remains ambitious: ‘We’re in the first year of our four-year strategy, with the objective of reaching £100m by the end of it (2027). We’re comfortable with our ambitious strategic plans, and we want to be bigger, better and deliver more strength and depth for our clients.’
Other firms follow suit in line with the headline trends, as evidenced by Birketts, holding the 55th spot, achieving a noteworthy 10% revenue increase for the past financial year. Jonathan Agar, the firm’s chief executive, points to the firm’s double-digit growth and credits the strong performance in the corporate and real estate sectors. However, he highlights that growth has tapered off in the transactional space, despite the market experiencing unexpected busy spells last summer.
‘Everybody will know that around autumn last year, transactions slowed down and our transactional team slowed down a bit. But our advisory teams carried on very well,’ he says.
Peter Swinburn, chief executive at Clarke Willmott, echoes the hurdles confronting the transactional market as the firm slips three places, with revenue remaining stagnant. However, the firm’s PEP is up by 14%, standing at £485,000.
‘Some sectors have been more challenging than others over the course of the last 12 months. Transactional activity has been challenging in some of our more commercial areas, notably corporate and commercial property, but that has been offset by upticks in other areas, litigation and private client in particular,’ he says.
As for deal activity over the next year, Street remains pessimistic. ‘With interest rates and inflation where they are, it could be a challenging 12 months for firms undertaking mid-transactional work.’
Wilson articulates further market challenges, emphasising the issues that law firms and professional service firms encounter in terms of partner talent. ‘Coming out of the pandemic, a number of partners are retiring earlier, in their early 50s. So you’re losing talent and experience at the top. And you’re also seeing a heavy bidding culture coming in for getting talent in. Everybody is trying to recruit out of the same pool, which is an ever-dwindling pool.’
Similarly, mid-market firms acknowledge their inability to rival the top 25 firms in terms of pay. Agar says: ‘At the very top, up until recently, the prices paid for talent have just been insane. But those big global firms can make the economics work, because they’ve got clients that are willing to pay top dollar. But the trickle-down effect on our marketplace is pretty severe. Because we don’t have the charging power of those global firms. Inevitably that’s started to put pressure on the salaries we’re paying people.’
Pollins acknowledges this truth of his own firm. ‘It is difficult to compete with the Magic Circle in terms of pay so we have to offer more by way of better work-life balance, genuine support around career development and a culture that we think is positive with a real focus on wellbeing.’
Wilson highlights concerns related to technology and costs, reiterating a point also made by Agar: ‘Everybody in our tier of the market, dependent on your perspective, wants to see what extra value you can offer.
‘Everybody in our tier of the market, dependent on your perspective, wants to see what extra value you can offer.’
Jonathan Agar, Birketts
It’s whether you have training services, conference services, networking services, technology services – what’s the extra value we can offer? That’s a growing expectation among clients, and it’s becoming more commonplace among all providers. If you’re not there offering seamless technology solutions to the normal rudimentary stuff that clients can do, you’re off the mark. It’s moving from price to value. Costs are going up across the board.’
In the realm of practice areas, firms like DMH Stallard, Birketts, and Cripps, all ranked within the second 50, point to an upswing in the performance of the real estate sector in the last fiscal year. Cripps disclosed a 7% growth in revenue with managing partner James Beatton partly attributing this achievement to the firm’s real estate practice. The firm also made it into the ten fastest-growing firms by PEP, with an increase of 13% to £347,000.
He says: ‘The real estate sector is a big part of our business and growth in this area is a priority for us going forward. We want to do more to celebrate our expertise, achievements and the work we do for our real estate clients.’
Ashfords revealed relatively flat revenues and highlighted the challenges of recruiting in this sector. Louise Workman, CEO of the firm, says: ‘We found recruitment really difficult over the last year, particularly in real estate – everybody was looking to recruit into real estate.’
She adds, however, that the market is beginning to slow. ‘That market we’re seeing level off, if not go a bit cooler at the moment, in terms of demand for clients. Now, that could just be that it’s the summer months – things could come back. But it’s definitely quieter than it was.’
Looking north, Scottish independents continued to perform strongly, with Burness Paull maintaining its position as leader of the pack in the Second 50, with a revenue of £83.3m, up 8%. Brodies, which held its position among the firms ranked 25-50 after moving out of the lower half last year, has continued to make excellent progress, becoming the first Scottish firm to break through the £100m revenue mark.
With the notable mergers of Morton Fraser and MacRoberts, as well as Irwin Mitchell and WJM, it seems that Scotland is witnessing the inception of yet another consolidation trend. These new alliances suggest the potential of new entrants making their mark in the Second 50 rankings next year.
‘We’re all anticipating changes in the economic outlook, which don’t seem to have materialised yet. But I sense there’s going to be a tightening of the economy.’
Graham Street, RWK Goodman
Shepherd and Wedderburn, which occupies spot 65, revealed an annual revenue increase of 7%, despite dropping one place. Managing partner Andrew Blain says: ‘Against the backdrop of a tricky economy and the ups and downs of this year, we were pleased to deliver such a strong performance.’
Harper Macleod has narrowly secured its spot in the LB100, sustaining a stable 5% revenue growth. Managing partner Martin Darroch credits the firm’s corporate, regulatory, and banking teams and envisions further consolidation in the Scottish market over the next 12-18 months.
‘There will be more consolidation in the Scottish market. Prolonged higher interest rates will lead to a slowdown in corporate (as well as general) activity and there is likely to be an impact on law firms not focused on their working capital management,’ he says.
Going forward, Scottish firms express apprehension about the market. Blain says: ‘We’ve got inflation running at a reasonably high number, having risen for 14 consecutive months, so there are clearly some economic challenges and it remains to be seen what impact it has on activity levels.’
Other firms occupying the second 50 echo this sentiment. Street says: ‘The opportunities are going to derive from the prevailing economic, political and economic climate. We’re all anticipating changes in the economic outlook, which don’t seem to have materialised yet. But I sense there’s going to be a tightening of the economy.’ LB
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Lock-up performance
More than half of LB100 firms disclosed their lock-up, defined in days as the sum of unbilled work in progress and debtors not collected (excluding VAT). Change in number of lock-up days from last year’s report, where applicable, is indicated in brackets. The average here, at 125, is very high and unchanged from last year. Ten of the participating firms have lock-up in excess of 150 days. Excessive lock-up can be a serious problem. If a firm has a lock-up of 150 days, it does not get paid for work until five months on average after it has finished. Harbottle & Lewis is the strongest performer in this regard, keeping lock-up to just 45 days – considerably ahead of the pack. Meanwhile, CMS, Osborne Clarke and Addleshaw Goddard are standout performers among the top 25 firms.