Legal Business‘s 15th annual Global London survey assesses the impact of a seismic year on the City’s leading US and foreign practices
The vultures have been circling. Partner hires hit new heights among the 50 firms that comprise our Global London table this year, but overall the City’s US shops have remained steady after a period that saw the UK economy rocked by last year’s Brexit vote and the legal market witness its largest European firm collapse.
The 50 largest foreign and international law firms in the City appear largely to have ridden out the turbulence of 2016. Lawyer headcount has continued to rise, up to a new record, with the top 50 in the City housing 6,033 fee earners, even after the collapse of King & Wood Mallesons’ (KWM) European arm. The survey also reveals the number of UK-qualified lawyers in the top 50 has slipped to around 79% or 4,747 of the total.
A notable finding in recent years has been the sharp increase in foreign – primarily US-qualified – lawyers at the London arms of American firms. The number of foreign lawyers is up from 998 in last year’s report, to 1,286, a figure primarily attributed to demand for New York law advice in deal finance and capital markets work as European borrowers tap US investors. Just two years ago the group had only 822 non-UK lawyers.
That said, headcount growth is significantly more subdued than in our 2015 report, when we added Dentons and Squire Patton Boggs for the first time. As a result, total headcount was then up 21% compared to this year’s movement of around 1%. The major cause of this flat headcount is the sinking of KWM’s European business. The legacy SJ Berwin partnership has dropped out just one year after entering the table, after large chunks of the old London team were either acquired by rival firms or absorbed as a skeleton team into the Chinese firm in a play dubbed KWM 2.0. Without that collapse, headcount growth would have likely exceeded 4% across the group.
Recruitment at the top 50 international firms was also at a new high, with 190 partner hires across the top firms surveyed, with a number of firms – particularly Reed Smith, Greenberg Traurig and Goodwin Procter – benefiting from partners leaving KWM. As such, partner recruitment is up 56% on the 122 partner moves in 2015. However, with significant lateral hire movement between Global London firms, overall partner headcount was only marginally up on 2015 at 1,680 from 1,677, a dip compared to last year’s anomaly when partner numbers rose 20%.
Overall, however, lawyer headcount at international and US firms in the City is now substantially above 2008 levels, when it peaked pre-banking crisis at 4,444.
And the meteoric growth experienced by some firms in recent years appears to have stabilised for several firms in the table, with 16 firms having flat or single-digit growth in lawyer headcount in 2016 and 17 firms recording negative fee-earner growth year-on-year. This includes established names such as Dentons, Baker McKenzie, Mayer Brown and Jones Day all seeing single-digit decreases. But there were still 15 experiencing double-digit growth or better in the past year. Of those, two grew by 50% or more, with Quinn Emanuel Urquhart & Sullivan growing by 66% and outlier Goodwin increasing headcount by 132% – a huge boost for a firm that claims to have never lost a partner in London to a rival. But while this sudden spurt of growth (in Goodwin’s case a direct consequence of a small London office hiring a large team from KWM) catches the eye, it is indicative of a trend. Over the past five years, 20 firms have increased their headcount by more than 50%.
Even with the KWM insolvency, there are now five foreign firms with more than 300 lawyers in London and White & Case with 448 lawyers is now rapidly closing in on the 500-lawyer mark.
‘It’s hard to see how the pipeline of work looks; it makes people nervous because we seem to be going into the new world.’
Simon Jay, Cleary Gottlieb Steen & Hamilton
Partner promotions were down slightly compared to past years, with 76 promotions in 2016 compared to 77 in 2015. Among the more mature practices the numbers remained similar to last year as the top ten firms promoted 44 lawyers to partnership in the City in 2016 compared to 42 the year before. In a sign of ongoing investment in the City, White & Case and Kirkland & Ellis saw the biggest rounds, making up eight partners a piece, matching their rounds in 2015.
The post-Brexit effect on sterling could mean a further drop off in associates at US firms according to some predictions. With several firms having matched their newly-qualified pay in London to keep up with New York rates, the sharp drop in the value of sterling means keeping pace with the race for young talent may prove a further challenge for 2017. It has been a period of uncertainty and turbulence; partners are waiting to see if there will be more fallout to come.
Financially the London outposts of leading international firms reported mixed results for 2016. White & Case remains the highest-grossing US firm in London with revenues up 4% to a new high of $290m, while Latham & Watkins, the firm White & Case replaced as the biggest billing Global London firm last year, did not provide a London revenue figure for 2016, although its turnover is believed to be largely flat in the City after a quiet year in its marquee buyout practice.
Conversely Reed Smith and Debevoise & Plimpton both struggled for revenue in London over the last calendar year – Reed Smith’s turnover slipped 5% in sterling terms to £129m from £135m but the firm will hope for a bounceback in 2017 thanks to the addition of 50 KWM lawyers into its UK and European operations. Meanwhile, Debevoise had what presiding partner Michael Blair described as a year of consolidation after a significant year of growth in 2015, with turnover falling by 3% to $107m in 2016 after the firm posted a 20% increase in London revenues the year before.
The new world
While many US partners feel their practices are well hedged with cross-border work, there is still caution among senior figures. Says Cleary Gottlieb Steen & Hamilton corporate partner Simon Jay: ‘The market has ticked up reasonably, but is not quite back to its peak. It’s hard to see how the pipeline of work looks; it makes people nervous because we seem to be going into the new world.’
Cleary’s conservative hiring policy has left headcount relatively static at 116 lawyers (the firm has grown by a modest 17% in London overall in the last five years), but the firm did make an impact in 2016 with the addition of Allen & Overy (A&O) global regulatory head Bob Penn and in 2017 is set to move to new offices near London Wall, giving the firm room to grow headcount to around 180 lawyers.
Of the firms with well-established London offices, Sidley Austin and Dechert were among the fastest movers in 2016 (see case studies). Dechert increased London office headcount by 30%, while Sidley Austin made a significant private equity and finance team hire from Kirkland, overall increasing its lawyer numbers by 24% with 12 partner hires. Latham was also aggressively recruiting at senior level, with 12 partner hires in 2016 despite only increasing overall lawyer headcount in London by 6%.
Other active firms in partner recruitment included Reed Smith, Greenberg and Goodwin, all of whom benefited from KWM’s woes. In total, Reed Smith added 12 partners in London and picked up the most significant chunk of the collapsed firm, with eight former KWM City partners among a team of almost 50 lawyers and staff from across KWM’s European offices.
‘There are huge market forces out there and those forces on the whole are more supportive of the US firms than UK firms.’
Charlie Geffen, Gibson, Dunn & Crutcher
Goodwin focused on building out its private equity offering, with the arrival of a team including key KWM figures Michael Halford, Ajay Pathak and Ed Hall, as well as a team into its Paris office, which all told accounted for a £15m annual book of business.
Greenberg, meanwhile, was another firm touted to be adding significant numbers as KWM collapsed, ultimately adding six partners from the firm building out a corporate real estate offering, including top-billing partner Steven Cowins.
‘The fulfilment of our strategy in real estate, adding the KWM team and adding to our tax team was a significant highlight,’ comments Greenberg London chair Paul Maher. ‘It’s very early days, but we are very excited.’
Maher is also bullish about ongoing investment in the City for US firms, particularly after the Florida-based firm ended merger discussions with top-20 UK firm Berwin Leighton Paisner early in 2016. Maher observes: ‘The US firms that have established themselves over the last few years are finding it easier to convince people who would once have been shy about moving to join a US firm.’
The top end
For some established US players in the Square Mile, 2016 was all about maintaining momentum. White & Case’s London office has enjoyed an impressive run in recent years and turnover in 2016 was up around 4% to $290m as headcount grew 7% to bring the UK office up to 448 lawyers.
London executive partner Oliver Brettle believes the market reputation of the firm’s City office has finally caught up with reality: ‘The point is, for us this is not just “White & Case: London”. What “White & Case: London” has is the ability to call on the global strength of the firm, and the reality is evidenced by the matters we are working on and the cross-border work that is part of our DNA.’
While the pace of growth in London has slowed after a 22% increase in turnover last year, the hires in 2016 of the likes of corporate partner Patrick Sarch from Clifford Chance and competition partner Marc Israel from Macfarlanes suggest there is more to come.
White & Case’s Global London rival and the Legal Business US Law Firm of the Year, Latham & Watkins, also enjoyed an active year after the firm recorded a global revenue boost of 7% globally to $2.8bn, while profit per equity partner increased 5% to $3.06m.
Latham London managing partner Jay Sadanandan says: ‘We have great momentum in London and we continue to attract top talent whose experience and contacts nicely complement our practice.’
A dozen senior hires in London included arbitration specialist Sophie Lamb from Debevoise & Plimpton, while the addition of banking partner Stephen Kensell from A&O is seen as a key hire.
Other reported turnover for the largest firms saw Bakers up to £178m in turnover in London from £145m in 2015, a significant year of growth for the firm on the back of a strong year for the global practice. The firm’s chair and former London managing partner Paul Rawlinson says that following a London regional partner meeting in March, the plan is to recruit up to 20 transactional partners in London over the next three years.
‘We haven’t got a set-in-stone target, but internally we have aspirations. We have around 400 lawyers in London, but we would want to increase the bench strength in regular M&A, private equity, banking and finance by ten to 20 partners in two or three years from around 30 at the moment.’
‘We have 400 lawyers in London, but we want to increase the bench strength in regular M&A, private equity, banking and finance by ten to 20.’
Paul Rawlinson, Baker McKenzie
But while the potential for further growth is there, firms are wary about the prospects for 2017. Gibson, Dunn & Crutcher continued to set a strong pace, increasing its headcount by 12% year-on-year having grown by 79% in the past five years. London corporate chair Charlie Geffen says: ‘Brexit is hard to read. If you talk to most lawyers, they say they are busier than they expected to be post the referendum, but how sustainable is that? At a macro level there are huge market forces out there and those forces on the whole are more supportive of the US firms than UK firms. Certainly access to US clients and profit pools is an advantage in the war for talent.’
Geffen adds the firm’s London bench strength has seen it winning mainstream M&A deals that once would have been out of reach. ‘The work we have pitched for would have gone to a London firm previously. We have done six or seven public M&A deals in the last two years. Public M&A is probably the last area of top-end work that UK firms have held on to.’
Significant instructions for the Gibson Dunn team included Jonny Earle advising on William Hill’s bid for Canadian gaming company Amaya for £4.5bn, while Geffen and Nigel Stacey acted for private equity house Terra Firma’s acquisition of ODEON & UCI Cinemas Group for $1.2bn.
Among the more specialised outfits, Kirkland has continued to attract senior private equity lawyers and hold on to its leading reputation in this practice, despite losing a team to Sidley. The hires of private equity partners David Holdsworth and Stuart Boyd from Linklaters were probably the most sizeable moves in 2016 for the hard-hitting Chicago outfit. Another notable hire from the Magic Circle in 2016 was Freshfields Bruckhaus Deringer’s TMT head and M&A partner Ben Spiers, who joined Simpson Thacher & Bartlett on the back of advising SoftBank on its £23.4bn deal to acquire ARM Holdings.
Disruptive forces
The latest arrivals to the City have continued to increase their presence, albeit at a more subdued rate than in recent years. Goodwin’s major team hire aside, other fledgling offices presented a somewhat mixed picture.
The pace of Ropes & Gray’s London growth has slowed, with the firm adding 8% more lawyers to its headcount, but a drop in pace was inevitable. It comes after the firm grew by 37% in 2015, having only opened its City operation in 2009. But while growth was still apparent, the departure of office founding partner and co-managing partner Maurice Allen, who became a consultant at DLA Piper and was hugely influential at Ropes, has been viewed as significant.
A more recent arrival, Cooley, grew its UK offering by 20% last year, matching its growth rate in 2015. The firm’s London turnover hit around $47m, beating management’s stated target of $40m when the office launched two years ago. In 2016 the firm added four partners, including Stephen Rosen from Olswang in private equity and Louise Delahunty in white-collar crime from Sullivan & Cromwell.
‘We have great momentum in London and we continue to attract top talent whose experience and contacts nicely complement our practice.’
Jay Sadanandan, Latham & Watkins
Says Cooley London managing partner Justin Stock: ‘We are known for our work with disruptive growth companies and our lawyers in the States have a great way of dealing with clients, which results in amazing loyalty – they are seen as true business partners. We now play in the top tier of the US and we weren’t there ten years ago. We want to replicate that success in London.’
Quinn, meanwhile, has added further to its topline, up 21% to $44.8m last year. The growth came as the firm added further disputes heavyweights, such as Mark Hastings from Addleshaw Goddard in late 2016. The office launched both a long-awaited corporate crime practice with Covington & Burling partner and former Serious Fraud Office prosecutor Robert Amaee, and a UK construction disputes practice with Herbert Smith Freehills’ James Bremen. Competition partner Kate Vernon joined from DLA Piper, and litigation and arbitration partner Paul Friedman arrived from Clyde & Co.
Meanwhile, another firm to see a significant movement was Arnold & Porter, which merged in the US with Kaye Scholer in January (see case study opposite). The deal sees a new firm with a refreshed London offering of 69 lawyers, and greater capacity in New York and Washington DC.
With article 50 triggered and Brexit now a real challenge rather than a distant spectre (see ‘The blueprint’, page 70), further disruptive forces could challenge the status quo for UK stalwarts, but also the relative newcomers from over the pond. Unsurprisingly, many partners at US firms in the City contend that the impact will be harder on UK firms reliant on domestic work.
But what of the impact on the UK elite? ‘There is always certain Magic Circle work that, given their size and expertise, will be difficult to get,’ comments Stock.
‘We now play in the top tier of the US and we weren’t there ten years ago. We want to replicate that success in London.’
Justin Stock, Cooley
However, Geffen comments: ‘As has been said before, the big difference is the English firms are shrinking to grow profitability, but the US firms are growing to achieve profitability.’
His view is that many US shops are maturing their London offering, with Gibson Dunn’s first cohort of London trainees set to qualify in September.
Geffen adds: ‘Lawyers tend to be the last sector to go into a downturn, and the last out. That’s just borne from experience.’
Wariness over Brexit aside, the US onslaught in the City shows no sign of stopping or even much slowing. LB
matthew.field@legalease.co.uk
Additional reporting by Madeleine Farman and Georgiana Tudor
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Global London total headcount 2007-16
Proportion of international and UK-qualified lawyers
Partner hires
Breakdown of all lateral hires by practice area
Fastest-changing London offices by headcount 2015-16
Fastest-changing London offices by headcount 2011-16