A 10% jump in average revenue to £149.2m for firms ranked 26-50 in the LB100 appears to extend the robust fighting spirit of this group from last year – again eclipsing a more sedate 5% increase among the top ten and top 25 – but, as usual, this fails to tell the whole story.
In 2019 it was Womble Bond Dickinson’s transatlantic merger that inflated revenue and catapulted it into the top quartile at the expense of Fieldfisher. This year, the addition of listed firms Slater and Gordon and Ince Group has bolstered the £3.7bn total revenues of the second 25 by almost £300m and explains much of the leap.
Notwithstanding, this has marginally enhanced per lawyer averages, with the 3% hike in revenue per lawyer (RPL) to £273,000 and average profit per lawyer (PPL) – among the 22 firms in this group with conventional equity partnership structures – growing 2% to £66,000, comparing favourably to a flat performance last year.
And the Ince Group hurtling into the second 25 on the back of 87% revenue growth to £98.5m, in its first full financial year since Gordon Dadds acquired international shipping firm Ince & Co, will also have enhanced average PPL and RPL. In spite of operating profit rising a hefty 72% to £26.2m from £15.2m last year, the firm was narrowly thwarted by Covid-19 in its stated ambition to break the £100m revenue mark.
Diversity: gender balance at senior level
Covid has caused the inevitable pull down on partner profits that firms across the LB100 have experienced in 2019/20. In last year’s report the 26-50 group shone, with 13% growth in average profit per equity partner (PEP) to £566,000 even taking into account that this covered only 23 firms, excluding Gateley and Keoghs which do not operate conventional equity partnerships. The feat failed to be repeated this year with PEP down 3% at £549,000.
Gaining ground
As ever, there are firms that have managed to battle challenges better than peers and Kennedys again stands out as a notable member of this class. Notwithstanding the obvious trials of having the last two months of its financial year overshadowed by the coronavirus lockdown, this shipping and insurance specialist is one of the few in the group to have risen the LB100 ranks – albeit by only one place – to 27th position.
Kennedys pulled off a second consecutive 10% rise in revenue, growing turnover to £238m, amid sustained investment that has seen total staff headcount grow 7% to 2,150 in the financial year, including 20 lateral hires globally. The firm’s five-year track is striking, with revenue soaring 84% since 2015, a level of growth only matched in the group by expansive Midlands firm Freeths.
Senior partner Nick Thomas has never been a fan of PEP as an indicator of financial success, however a 29% surge to £566,000 is hard to ignore and one of the standout PEP performances, not only of the second 25 but of the entire top 50.
‘We are approaching next year cautiously but, as a firm focused on private capital, we find our clients are very active in volatile times and we hope that will continue to fuel our growth.’
Margaret Robertson, Withers
Thomas admits to a strong year but is characteristically careful to avoid complacency in the face of volatility: ‘Personal injury work has reduced because the human activity that would lead to people being injured has not been happening during lockdown. And the aviation team deals with things like lost suitcases and denials of boarding, so that business has also suffered. Those areas are not exactly boomtown. Claimant lawyers are struggling to get their act together and get writs out.’
Burges Salmon did surpass £100m in revenue on the back of 11% turnover growth to £104.9m as operating profit also increased 11%. The result was achieved despite the firm’s reporting period running till the end of April, encompassing some six weeks of the Covid-19 lockdown and fallout. PEP was more subdued, rising only 1% to £446,000, thanks to a substantive growth in its equity partner ranks. Managing partner Roger Bull is suitably upbeat but concedes that the unforeseen market challenges of 2020 warranted a review of the firm’s growth strategy.
Macfarlanes’ financial performance was something of a swan song for senior partner Charles Martin as he passed the baton in April to Sebastian Prichard Jones. Few law firm leaders could have left their firm in better shape than Martin did after an outstanding 12-year run, with last year’s 10% revenue growth to £237.7m marking a tenth consecutive year of growth. PEP too increased 11% to £1.9m, a notable year-on-year improvement on 2018/19, when revenue increased 8% while PEP fell marginally. And 49% revenue growth since 2015 – despite only bolstering lawyer headcount 28% in that time – is also notable.
Says Prichard Jones: ‘There were many reasons for caution, including the governmental situation, Brexit, the General Election and then Covid/lockdown. Throughout the year, however, our clients remained active right across our three main practice areas (transactions, disputes and advisory). The strong activity levels right across the firm produced a decent outcome.’
Elsewhere, private wealth specialist Withers was another clear winner with a period of international expansion translating into a pace-setting 14% revenue rise to £219.7m in the context of a 64% turnover hike since 2015. Withers left peers behind by a long way on its year-on-year PEP performance with a 42% increase to £501,000, with total partner profit bouncing back with a 34% increase to £42.1m after a 12% slump in 2018/19.
‘Everyone was talking about Brexit 12 months ago, then the election, now we’re all amateur virologists.’
Andrew Edge, Stephenson Harwood
For Withers, it is proof that fortune favours the brave investor. Recent examples are the September 2018 hire of Bryan Cave Leighton Paisner international arbitration team head Emma Lindsay in New York and a February 2019 hire of a three-lawyer California team from Los Angeles firm Mitchell Silberberg & Knupp.
Chief executive Margaret Robertson is bullish: ‘Going into lockdown, we had a full pipeline of work and had experienced a very good financial year thanks to investments made in the prior few years. Although the final three months of the year were quieter in some areas, client demand actually grew in dispute resolution, technology, and estate planning and structuring. We are approaching next year cautiously but, as a firm focused on private capital, we find our clients are very active in volatile times and we hope that will continue to fuel our growth.’
HFW was another success story after reversing a 9% profit dip the previous year and recovering PEP with a 9% increase to £526,000 following an 11% deficit in 2018/19. Revenue grew 9% to £195.2m and RPL rose 7% to £343k.
The engine rooms of the firm’s growth were its global construction group, which increased revenue almost 20%; its aerospace group, which increased output 13%; and its shipping group, which grew output 12%. HFW has grown revenue by 40% in the last five years.
Freeths also moved up a spot to 45th place, partly thanks to a 14% revenue uptick to £102.8m. A strong year saw PEP increase 6% to £490,000 but this performance was overshadowed when news broke it had recently let go 11 support staff and 19 lawyers across its 13 offices due to what chair Colin Flanagan said aligned ‘headcount to our reduced levels of work in some departments’. However, it is a common response to the crisis that many other law firm leaders have dismissed as a knee-jerk reaction.
Battling on
Notwithstanding Travers Smith, which suffered a reversal through no fault of its own (see case study, below) there were few serious casualties in the second 25. Among the worst hit was Trowers & Hamlins, with a nominal 1% revenue increase to £106.2m and 13% dip in PEP to £309,000, while its 34% turnover growth since 2015 is one of the least remarkable.
Diversity: Ethnicity
Similarly, RPC had an unspectacular year with turnover at the insurance and litigation firm growing just 1% to £110.1m – although the removal of its UK construction and projects practice and Hong Kong marine practice from the equation would have resulted in a healthier 7% growth rate. A 17% rate of revenue growth since 2015 ranks among the least expansive in the second 25. PEP was also something of a damp squib for RPC, falling 4% to £423,000 as the firm looked to steady the ship after a period of flux, amid structural changes to practice lines, a planned departure from its all-equity partnership and a new senior partner in the form of Oliver Bray taking a three-year term in June to replace commercial disputes partner Rupert Boswall.
Comments managing partner James Miller: ‘We finished the financial year very much on the front foot, and revenue generation levels have remained high during lockdown. Looking ahead, we have started the new financial year as positively as we ended the last one and I remain very optimistic that the future – despite considerable economic and political uncertainties and the challenges faced from Covid-19 – will bring exciting new opportunities with existing clients as well as new.’
Looking ahead
‘Everyone was talking about Brexit 12 months ago, then the election, now we’re all amateur virologists.’ So says Stephenson Harwood’s Andrew Edge on the bizarre state of affairs that no-one saw coming this time last year.
In 2019, management of the 26-50 band were bracing for battle against assorted opponents including political uncertainty and Brexit, pricing pressures from clients and, probably the most popular concern last year, the cost of tech.
Ironically last year the expense of IT infrastructure was an unwanted but necessary evil. This year, law firm leaders are thanking their lucky stars they did invest, making enforced adaption to remote working relatively pain-free.
Bull’s sentiment is commonly held: ‘We have invested in technology and have had agile working for several years, so people were used to working from home anyway. There was a bit of catching up on the business services side with things like billing remotely, but within two weeks of lockdown that had been ironed out.’
The threat of a hard Brexit is still high on the worry list but has clearly been overshadowed by an indefinite pandemic and its inevitable effect on business. Yet fears around the thorny issue of cash collection in the time of coronavirus have largely yet to be justified.
Says Thomas: ‘Things are holding up. The clients that are difficult about paying were the same clients we had trouble with before lockdown. But in financial services and insurance we’re better teed up than others. Getting clients to pay has been an issue but not a major issue. We’re part of what clients need.’
As the full effect of the crisis has yet to play out, it is clear that the year ahead promises tough decisions for many LB100 leaders, however resilient the second 25 has been up to now. LB
nathalie.tidman@legalease.co.uk
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Case study: Travers Smith
Travers Smith’s managing partner David Patient and senior partner Kathleen Russ refuse to see 2019/20 as a setback, despite a pandemic putting the kibosh on a decade-long run of revenue growth and somewhat taking the sheen off its star position in the LB100’s 26-50 class.
Argues Patient in typically upbeat fashion: ‘We did really well considering the entire last quarter of our financial year took place during lockdown. We’ve had a pretty strong financial performance, all things considered.’
True, the 1% revenue dip to £160.9m, 11% slump in net profit and 19% fall in profit per equity partner (PEP) to £1m must be considered in context, given the unfortunate impact of having a reporting period running to the end of June rather than April, meaning greater exposure than most peers to the pandemic downturn.
Nevertheless Patient and Russ have good reason to be bullish. Travers’ striking five-year track shows a 52% hike in revenue since 2015 amid headcount growth of 28% and a 24% increase in equity partners.
Moreover, the firm has done better than many in maintaining its prized culture and side-stepping knee-jerk reactions such as furloughing staff or enforcing reduced hours.
Travers introduced what Patient called ‘prudent financial measures… to protect our business’, with the firm in April reducing monthly drawings for all partners and deferring partner profit distributions until the longer-term trading position became clear.
It had awarded firm-wide bonuses in July at a reduced rate and has now released partner distributions and the second part of the employee bonuses, paid at the end of October.
Upsides for the year include continued investment in promoting and retaining talent, as well as in technology – an outlay that has paid significant dividends as staff were forced to adapt quickly to remote working. The management remains a class act and with such enthusiasm, it is hard to imagine Travers not returning to form next year with its trade-mark finesse.
What has the market been like for you?
David Patient: It was an uncertain world six months ago and transactions were put on hold or scrapped, but that pause was not reflected in other areas like employment, restructuring and pensions. Those went into overdrive with Covid-related issues. Transactions bounced back in May and have been busy since. July and August were as busy as last year and the pipeline is extremely strong, reflecting our client base and the availability of finance. Confidence is returning, while litigation and disputes activity has continued well during lockdown.
What goals are you setting yourself?
Kathleen Russ: The firm is constantly evolving and we are not going to go back to the old normal. We want to take the best bits of Travers and evolve to our new environment and future ways of working.
We are not going into new areas but those adjacent to our existing sectors that we see as important to the business. ESG is a top-table issue and sustainable finance is a big stream of work but is not a brand new practice area in itself.
Patient: We need to continue to service clients and look after the health and wellbeing of our people.
How are you doing on diversity?
Patient: Kath becoming our senior partner was a watershed.
Russ: Diversity and inclusion is a genuine priority for us and we have been pretty good at walking the walk. Our partnership board has one BAME member and two women. We just want the best people at Travers and the best talent comes from different backgrounds.
What are you predicting for the next 12 months?
Patient: We’ve had a good strong first quarter of this financial year. It’s difficult to predict what’s going to happen but I’m optimistic. Looking to 2021, what I hope will happen is that confidence will increase as we start to see light at the end of the tunnel.
Russ: Our priorities are continuing to invest during this crisis and being ambitious. We have a determination to invest rather than see this as a period of retrenchment. We have worked long and hard to get top-quality people at Travers. How you treat people in tough times is reflected in their loyalty.
Patient: There are plentiful opportunities to invest, pushing on with the tech sector, derivatives, pensions and disputes practices.
As we enter this next phase, we are feeling confident that we have got the business and tools to give the clients what they need. We are cautiously optimistic that even if there are higher levels of Covid restrictions, we won’t see it having such an impact.
Nathalie Tidman
Which firms have the biggest UK business?
This table lists the top 50 firms by UK revenues only. Once international fee income is taken out of the equation, the relatively strong UK performance of Global 100 firms such as Clifford Chance and Hogan Lovells becomes apparent. NB This table only lists the top 50 firms by UK fee income that chose to disclose a breakdown of fee income geographically – many international firms are unable to provide this.