A glance at our Legal Business 100 table this year shows the post-Covid, frothy corporate market conditions have finally come to an end. The significant number of red, downward pointing arrows for profit metrics in particular means the leaders of the top 100 firms by revenue in the UK have reason to be nervous.
The choice of a music chart theme for our report is no accident – this year has seen more movement up and down the table than there has been since the pandemic hit hard.
In top-line terms, the signs are still strong. On average, revenue is up 8%, broadly matching the growth rate in 2022 and few firms have seen year-on-year turnover reverses. And this is despite removing Ince, which accounted for £97m last year, from the LB100 table entirely (for more on the collapse of Axiom Ince, see analysis).
However, per lawyer metrics are much weaker, with revenue per lawyer up just 2% on average; profit per lawyer is down 1% and profit per equity partner (PEP) is flat – compare this to the double-digit growth across the board in last year’s report.
The radio silence that accompanied statements on financial results simply draws attention to poor performance without providing
adequate mitigation.
The corporate market was more difficult than the preceding two financial years, and the LB100 reflects that for a number of firms. A pattern was emerging even as firms announced their financial results from May onwards. There has been a palpable reluctance to go into forensic detail on turnover and profit performance. Press releases unveiling modest revenue increases and declining profitability (or no mention of profitability at all) were regularly accompanied by less than convincing claims that the c-suite at those firms were unavailable for interviews, often with excuses that management figures were ‘travelling’ – a PR trick that seems to gloss over the reality of the modern, connected, remote-working world. It seems that some firms think we buy into the idea that phones do not work outside of the UK.
But the radio silence that accompanied statements on financial results simply draws attention to poor performance without providing adequate mitigation. The more candid firms focused on the strength of their practices despite adverse economic conditions – namely inflation, interest rate hikes and the macroeconomic issues resulting from Russia’s continued invasion of Ukraine and unrest in the Middle East. In short, the ubiquitous headwinds that all of us face.
And yet there are firms that stand out, particularly outside the top ten, and are not just hiding behind the façade of financial health that consolidation brings. Addleshaw Goddard was a top-performer in the top 25, recording 18% revenue growth (83% over a five-year track) and a 13% lift to PEP. HFW posted excellent year-on-year results in the second quartile, with revenue up 13% and PEP up 19%, while in the second half of the table, Russell-Cooke had a particularly strong year. Strength in disputes, private client and regulatory is a common theme, even if the anticipated dispute-driven antidote to a sluggish deals market hasn’t quite materialised yet, and it’s clear to see why – more than half of the revenue generated by the LB100 comes from corporate, finance and real estate.
Our report concludes that things are likely to get worse before they get better. Fieldfisher managing partner Rob Shooter observes: ‘Anyone who’s not concerned is burying their head in the sand’. Now is the time to answer the difficult questions and adapt to a more hostile environment. Simply sticking your fingers in your ears and singing the same old tunes won’t cut it anymore. LB