The 27 regional and national firms occupying the 51-100 spots in this year’s LB100 come in with an average of 267 lawyers and 27 equity partners. But despite weathering Covid well, with average revenue increases of 11% and 13% in 2020 and 2021 respectively, our 2022 report sees growth flatten out, with average revenue up just 4% to £54.9m.
Alongside static revenues, profit per lawyer (PPL) fell 5% with average lawyer numbers up 7%. Meanwhile, although firms managed to make profit per equity partner (PEP) gains — with the average up 14% to £402,000, outpacing last year’s already robust 8% hike — this is coupled with a 10% decrease in average equity partner numbers.
Of course, some firms have bucked the trend, including Manchester-based JMW Solicitors, which turned in the strongest performance of the group with revenue growth of 25%. While this top-line growth is in part credited to its London office, which launched in 2019 and contributed £15.7m to overall revenue compared to £10.5m in 2020, its established Manchester office also saw a 19% hike in turnover. This follows several years of consistent growth for the firm, with revenues up 12% for 2021 and 24% for 2020.
However, the performance of national firm Blake Morgan more closely reflects the headline trends, with revenue remaining flat. PEP was up 14%, marking a return to form after falling by the same number of percentage points last year following the sale of its personal injury, clinical negligence and costs practices to Enable Law (part of the Foot Anstey group) in July 2020.
Managing partner Mike Wilson reflects on this: ‘It was a good outcome, but not a fantastic outcome. We survived and did OK as a result of the pandemic, which was by no means a dead cert when all of us were sent home to work. The firm has gone through a lot of change over the years and the strategy we have now is about growth. As we have got the firm’s balance sheet and financial structures in a good place with profitability rising, we can now afford to invest.’
‘A combination of what’s happening domestically and what’s happening in Ukraine will present some economic pressures.’
Graham Street, RWK Goodman
But Wilson is alive to the challenges of the competitive recruitment market exacerbated by the advent of remote working: ‘It has changed our recruitment strategy and it has widened the net for us, but it has also exposed us — and every other law firm — to those who have much deeper pockets in the hallowed halls of the City and can afford to take a bet on people who live in Bournemouth, for example. They can say: ‘you only need to come in a couple days a week so you can stay down by the seaside.’ That’s an attraction to people, and I wouldn’t blame them for it.’
He adds: ‘The market has been very buoyant, and some firms have had stellar results while some middle-market firms feeling the squeeze haven’t necessarily. This might cause consolidation in a market that is already consolidated and probably needs to consolidate some more.’
This is a trend that is already coming to fruition. In last year’s LB100, we saw the tie-up between Moore Blatch and Barlow Robbins in May 2020 and the acquisition of East Anglian firm Hewitsons by Harrison Clark Rickerbys in June. This year, we’ve seen this continue with the May 2022 merger of Bath-headquartered firm Royds Withy King (RWK), which occupied position 88 in last year’s table, and City boutique Goodman Derrick, which brings together 360 lawyers under the RWK Goodman brand.
Edward Hoare, the former senior partner of Goodman Derrick, highlights the challenges driving this trend for smaller London outfits: ‘It really comes down to economies of scale; it was just getting so expensive to be a small firm in the two hundreds. Insurance costs are about the same if you’re 40 lawyers or if you’re 150, you have all of these overheads that are not effectively graded and fair when you compare it to a larger firm. You’re always on the back foot and we just didn’t have that investment opportunity.’
For RWK, it adds City reach to a regional practice that independently made a 10% gain in revenue this year, rebounding from a 4% fall in last year’s report. Graham Street, who was managing partner at RWK and remains at the helm of the merged firm says: ‘We’ve made some strategic gains over the last 12 months, and we expect this to provide a stronger platform for us to continue to grow the business going forward, particularly in London.’
Street is quietly confident about the new firm’s prospects: ‘We’re going to be at the mercy of the prevailing economic conditions and a combination of what’s happening domestically and what’s happening in Ukraine will present some economic pressures. We’re a composite business with risks spread across commercial, private and industry sectors, and even within commercial we’ve got our risks spread and are quite diversified, so that will provide us with a certain degree of resilience.’
Continuing the theme of consolidation, there are new entrants in the Second 50 as a product of new alliances. House of brands group Ampa (which includes Shakespeare Martineau, consumer firm Lime Solicitors, debt recovery practice Corclaim and Sussex solicitors Mayo Wynne Baxter) came in at 55, an improvement on Shakespeare Martineau’s 58th place last year.
Sarah Walker-Smith, CEO of Shakespeare Martineau — which saw organic growth as an isolated brand and is set to merge with Bristol-headquartered GL Law later this year — is keen to highlight the benefits of Ampa group alliance for clients: ‘The house of brands set-up means we’ve got a broadened offering for clients. It’s a one-stop-shop idea really. Clients have the breadth and access to additional services but we also have more flexibility of resources, so we can manage peaks and troughs very quickly.’
‘There is lots of talk about recession and the impact that it will have on the markets. On the other hand, corporates still have very strong balance sheets.’
Peter Lawson, Burness Paull
It also allows individual brands to retain a level of autonomy, she explains. ‘What’s different about the Ampa system compared to a single law firm is that each brand can make local decisions. With things like our trainee recruitment, which is run across the whole group, it makes sense for us to do things together, but looking at pricing and salary inflation, it makes complete sense to do it by brand rather than having a single national sledgehammer approach.’
Walker-Smith contrasts Ampa’s model with Knights, which now sits in position 42 of the table having quickly gained revenue and moved out of the Second 50 last year. Knights’ revenue has boomed 69% over two years to £125.6m in 2022 as a result of buying out smaller firms, though in doing so, it has also gained debt of £28.9m, up 83% from £15.9m in 2020. Says Walker-Smith: ‘We don’t want to follow that model. We want to continue to merge rather than acquire because we want people to be motivated and feel that they’re part of something, not that they’ve just been bought out.’
Looking North, Scottish independents proved characteristically stable with an average 5% rise in turnover this year, though this now excludes Brodies, which saw revenue balloon 19% boosting it up out of the bottom half into 50th position. Of the remaining firms, Burness Paull leads the pack, tacking on 9% to its turnover for 2022.
Among its areas of growth, Burness Paull credits its housebuilding practice and corporate transactions in the tech space. The firm also established a private client practice as a reaction to demand, according to chair Peter Lawson: ‘We had clients who were seeking our services in relation to high-end family matters and rather than let that work pass on to another firm, we took the strategic decision to hire the leading team in the market. We’re seeing the benefits already from that. They joined halfway through the year, and they have delivered significantly more in terms of revenue than we had projected.’ Lawson is referring to the launch of its family law practice in February, with the hires of Richard Smith and Jennifer Wilkie from Brodies.
Shepherd and Wedderburn has seen consistently steady growth, following up on its 4% increase in revenue last year by adding 5% this year. Managing partner Andrew Blain notes: ‘The past 12 months was the first year of our revised strategy, so it was very much a year of investment, both in people and offices. We hope to see those investments bear more fruit in the next year or two, but we’re pleased nonetheless to deliver a strong year with 5% revenue growth and 3% profit growth.’
The firm also continues to see growth in its private client practice following its February 2021 coup, which saw it gain a 20-strong team from Dentons. Blain points to technology, infrastructure and clean energy practices as other areas of focus, with the need for the latter exacerbated by the current energy crisis. ‘They are long-term projects, which were planned and underway long before current geopolitical events, but it’s only natural that there’s more focus on those projects and more desire to get on with those projects and make them happen.’
Going forward, the Scottish firms echo the same apprehension felt across other firms occupying the Second 50, says Lawson. ‘The market is going to be challenged. There is lots of talk about recession and the impact that it will have on the markets. On the other hand, corporates still have very strong balance sheets, although some sectors less so because of the impact of Covid and then high inflation. Private equity has got lots of dry powder, so there is still lots of investment capacity across the market.’
‘At the moment we’re OK, but you need a crystal ball to know what’s going to happen in the next two or three years with the economy the way it is.’
Sarah Walker-Smith, Shakespeare Martineau
While managing partners are near unanimous in the view that a UK recession is on the horizon, Street takes an opportunistic view that a slowing of the market could steady the stratospheric salary inflation that is increasingly slipping into the regions. ‘Taking the heat out of the market is probably going to be a good thing for most firms. The wage market for newly qualified lawyers and associates is very hot, and tighter economic conditions might bring that down to more normal levels.’
According to Wilson, this is particularly critical if firms are to push ahead against the economic headwinds: ‘It’s important because if you don’t grow, you start to slide backwards. In adversity, opportunity also arises. Growth is key and recruitment is key.’
But as Walker-Smith notes, there is an air of uncertainty about the impact of upcoming trends, particularly after an unexpectedly busy transactional market over the summer.
‘At the moment we’re OK, but you need a crystal ball to know what’s going to happen in the next two or three years with the economy the way it is.’
Reaching for the coffee table in front of her, she adds: ‘I’m touching wood as we speak, but we haven’t yet seen a massive spike in insolvencies, which I expected, and nor are we seeing any drop off in transactions — yet.
But everyone is saying it… it’s only a matter of time.’ LB