The annual flood of financial results has engulfed the market once again, with Legal Business 100 firms observing how the Magic Circle firms in particular have performed compared to City peers.
Financial performance reported among UK firms so far reveal an estimated average growth of 8% in revenue, only slightly down on the average revenue growth of 9% recorded in our 2022 LB100 report. However, the picture is different for profit per equity partner (PEP), where growth has been minimal or flat and falling short of average performance in 2022, where PEP also grew by 9%.
Leading the way like last year, Freshfields Bruckhaus Deringer achieved the highest growth among the Magic Circle firms with its revenue increasing by 8%, while Allen & Overy (A&O) also came close to 8%. Linklaters closely followed with a 7% growth rate, and Clifford Chance (CC)’s revenue increased by 5%.
Both CC and A&O surpassed the £2bn revenue mark in the past financial year, both standing at £2.1bn. Linklaters and Freshfields both fell short of this milestone, coming in at £1.9bn and £1.8bn respectively.
However, most Magic Circle firms have experienced a decline in PEP. Freshfields is the only Magic Circle firm that saw an increase in PEP, with a modest 1% rise to £2.09m, in contrast to last year’s 8% growth.
Global managing partner Rick van Aerssen told Legal Business: ‘We are happy with the strategy and the strategy delivers. With the waters being choppier, we think macro trends typically play to a firm like ours, where we have broad offerings and are at the complex end of the market. Where it matters most, we see people increasingly turn to us.’
A&O saw the most significant decline in PEP among all Magic Circle firms, experiencing a drop of 7% to £1.8m. Senior partner Wim Dejonghe, who has stepped in to cover as A&O’s managing partner, explained the drop in PEP with reference to macroeconomic conditions and a competitive legal market. ‘We’re in an inflationary environment. Costs generally have gone up. And of course, there’s been a salary war in the industry around the world. We’ve defended our position, and we’ve had to spend quite a bit more on salaries to keep and recruit the best talent.’
‘We’re in an inflationary environment. Costs generally have gone up. And of course, there’s been a salary war in the industry around the world. We’ve defended our position.’ Wim Dejonghe, Allen & Overy
Linklaters experienced a 5% decline in PEP, dropping from £1.87m to £1.78m, while CC reported a slight dip in PEP, decreasing from £2.04m to £2m, in contrast to last year’s bullish 10% growth.
Outside the Magic Circle, Clyde & Co is at the forefront of revenue growth, reporting a 22% increase in revenue to £786.6m, while PEP held steady at £708,000. ‘Our results over the past year speak of a firm in good health and in growth mode,’ chief executive Matthew Kelsall said in a statement, although much of this top-line growth can be attributed to its merger with BLM, which went live more than a year ago.
Addleshaw Goddard followed close behind, revealing an 18% increase in revenue growth from £377m to £443m, matched by an 18% rise in total profit from £155m to £184m. PEP is estimated to be £909,000 by Legal Business, an increase of 5%.
Pinsent Masons is next, with an impressive 14% increase in turnover from £531.1m to £605.9m. The firm’s revenue growth rate has more than doubled since the same period last year. Additionally, PEP rose by 8% to £797,000, also well above average.
Managing partner Laura Cameron gave context for the significant acceleration in the firm’s revenue: ‘This has been a record year for us. There is no doubt that the macro-economic environment we are working in remains challenging, but these results are a product of the relentless pursuit of our strategy and a return on the investments we have made over the last few years on cross-border mandates, transactional and contentious work.’
HFW broke all trends, posting a 13% increase in revenue, rising from £198.7m to £225m. However, more significantly, PEP demonstrated substantial growth, surging by over 17% to £786,000.
‘We’ve built up a good network,’ said managing partner Jeremy Shebson. ‘We were building foundations, and now we’re looking to build on top of them.’
Simmons & Simmons closely followed with a significant 12% revenue growth, reaching £521m compared to last year’s £465m. This growth rate doubled the previous year’s increase of 6%. The firm’s PEP remained steady at £1m, while there was a 12% increase in partner headcount.
‘We’re very pleased with the results,’ managing partner Jeremy Hoyland told LB. ‘It has been a tough year – there’s no doubt about that. We definitely saw some softening on the transactional side. That said, our corporate practice had a very good year. Disputes, too, had a really strong year, after a couple of years of lower revenue in litigation.’
Both Fieldfisher and Stephenson Harwood reported an 11% increase in revenue growth. Fieldfisher’s revenue surged from £330m to £370m, marking an impressive ten years of consecutive revenue growth for the firm. However, the firm’s PEP declined by the same percentage, dropping from £1.05m to £930,000. Stephenson Harwood reported its highest-ever revenue of £228m, up from £206m. Additionally, the firm’s PEP rose by 6% to £725,000 from £685,000 in the previous financial year.
Numerous firms witnessed revenue growth hovering around the 10% mark. Ashurst celebrated its seventh consecutive year of revenue growth, with a 10% increase in turnover from £798m to £879m. However, the firm’s PEP experienced a slight decline, standing at £1.17m compared to £1.175m last year.
Global chief executive Paul Jenkins noted ‘above-benchmark growth in the Middle East, continental Europe, and Germany in particular’. He also pointed to the US as a ‘priority growth market’, citing growth there of 20% – above the 15% the firm reported last year.
Bird & Bird’s turnover also went up by 10% to hit £495m, in line with last year’s growth. PEP, too, ticked up slightly, increasing by 2% in sterling to £669,000.
Osborne Clarke (OC) and TLT followed, with a 9% increase in revenue. OC’s global turnover moved to €442m from €407m in 2022. However, the firm’s UK PEP experienced a 14% decline, falling to £687,000 compared to last year’s £796,000. TLT’s revenue went up to £157m from £144m, while PEP took a dramatic dip, falling 27% to £600,000 from last year’s £826,000.
Commenting on the reasons for the fall in PEP, TLT managing partner John Wood said: ‘We had an exceptionally high year last year, due to a unique set of circumstances. Combined with this we have been making significant investments in our people and our sustainability initiatives, and there are more general inflationary pressures on top of that.’
Eversheds Sutherland, Herbert Smith Freehills (HSF), and Keystone Law all reported an 8% growth in revenue. Eversheds reported a revenue growth from £678.4m to £730.9m, matching last year’s 8% increase. The firm’s net profit is also up by a significant 17% from £150.3m to £175.2m. However, compared to the substantial 26% jump in PEP in 2022, this year’s performance indicates a more modest 4% increase, rising from £1.2m to £1.29m.
Asked why the rate of PEP growth has slowed down this year, chief executive Lee Ranson told Legal Business: ‘We have had two record years of promotions of equity partners into the business, so the number of partners has risen. PEP is a basic equation; we are investing in people and the future of the business, so the last two years reflect lots of lateral hires and promotion rounds.’
Elsewhere, HSF celebrated a decade of consecutive annual growth, with the firm’s revenue reaching £1.186bn, up from £1.103bn. Moreover, the firm’s PEP increased by 2%, rising from £1.163m to £1.173m.
Speaking with Legal Business, HSF chief executive Justin D’Agostino said: ‘We are particularly proud of the results this year, especially because there were some significant challenges in all our markets, including rising costs and tougher trading conditions.’
‘We are particularly proud of the results this year, especially because there were some significant challenges in all our markets, including rising costs and tougher trading conditions.’
Justin D’Agostino, Herbert Smith Freehills
Keystone Law also saw its revenue grow by 8% from the previous year, reaching a turnover of £75.3m, compared to £69.6m.
Shoosmiths came next with a 7% increase in revenue growth, achieving a turnover of £194.1m. PEP remained steady, showing a slight increase of £1,000, reaching £676,000. ‘It’s been a challenging environment for all businesses,’ said chief executive David Jackson. ‘To have produced these results at a time of such turbulence is impressive. We’re pleased to have continued our upward trajectory.’
Taylor Wessing reported a 4% increase in global revenue, reaching the milestone of becoming a €500m firm for the first time, up from £420.6m last year. While the firm did not disclose its overall PEP, UK PEP is estimated to be around £809,000.
UK managing partner Shane Gleghorn told Legal Business: ‘We’re delighted to see growth in both the UK business and international business. We’re very pleased we managed to maintain growth in those circumstances where the markets, certainly in the UK, were more muted in relation to fundraising and corporate work.’
Overall, while most firms have experienced positive revenue growth during the last financial year, the reduction in profit levels means the prevailing macroeconomic conditions have finally taken their toll on the UK legal market. Market uncertainty has been rife, and the most significant factor has been the inevitable cooling of the global deals market over the past 18 months – the frothy conditions of 2021 were never going to be sustainable.
For more detailed analysis of firms’ 2022/23 financial performance, please see our Legal Business 100 report in the next issue.