After last year’s double-digit revenue growth for three of the big four Magic Circle firms, 2017/18 financials for the same group have failed to make as much of a splash this time around.
But while failing to match last year’s 11% uptick in revenue and profit per equity partner, Clifford Chance (CC) nevertheless leads the pack this year, in more ways than one.
CC was the first Magic Circle player to unveil its figures and also posted the highest revenue of its peer group, posting a 5% income hike from £1.54bn in 2016/17 to £1.623bn this year. The firm’s overall profit pool was up just over 13% to £626m and, factoring in a decrease in the number of equity partners from 403 to 392, PEP surged nearly 16% from £1.375m to £1.596m.
These results – and the fact that CC’s peers are not lagging very far behind – speak to a confidence among major law firms that the market has been unexpectedly buoyant as dealmakers push on in spite of the economic and political uncertainty posed by Brexit and the Trump administration.
As last year’s City big four laggard in revenue terms, Freshfields Bruckhaus Deringer’s 5% increase from £1.33bn to £1.403bn for 2017/18 will be welcome considering that last year the firm failed to hike fee income at all.
The rebound is underlined by a 12% PEP increase to £1.734m – a particularly welcome development given many London leaders are seeing their star partners whisked away by aggressive US rivals.
Freshfields managing partner Stephan Eilers (pictured) pointed to private equity transactions in areas such as fintech, TMT and infrastructure, as well as an uplift in the US business as the most significant drivers of growth. Corporate partner Natasha Good cited a mandate advising US cable giant Comcast on its £22bn bid for Sky against a rival bid from Rupert Murdoch’s 21st Century Fox and another acting for the target in Vodafone’s €18.4bn buyout of Liberty Global European assets as the trend for consolidation continues.
Looking ahead, Eilers is sanguine: ‘We are very optimistic for the future. We see the clients sticking with us. In the US we will try as we have been doing, to build antitrust, leveraged finance and M&A.’
‘We are very optimistic for the future. In the US we will try as we have been doing, to build antitrust, leveraged finance and M&A.’ Stephan Eilers, Freshfields
Linklaters’ financials were something of a mixed bag this year. On the plus side, the firm outstripped its peers in revenue growth, posting a solid 6% uptick to £1.52bn and adding £85m to its top line. The downside saw profits fail to keep pace with that growth, while PEP increased by a sluggish 2% to £1.54m from last year’s £1.51m. The result means Linklaters has the lowest PEP of all its Magic Circle peers.
Managing partner Gideon Moore is upbeat, pointing to the effect significant investments have had on the profitability of the firm, including the joint operations agreement with Shanghai firm Zhao Sheng. On the work front, Linklaters boasted a number of headline-grabbing mandates, including the £6bn sale of Unilever’s spreads business to KKR, the £3bn Sainsbury’s-Asda merger and Bain Capital’s $18bn acquisition of Toshiba Memory.
Allen & Overy was last year’s standout performer with the firm posting a 16% revenue hike to £1.51bn. But this year that blistering pace was not to be emulated as the London leader declared a 4% uptick, bringing turnover up £54m to £1.57bn.
The result was matched by a 4% increase in PEP to £1.64m, while pre-tax profits were up 3% to £690m. The performance leaves A&O as the second-largest Magic Circle firm in revenue terms, after CC.
Growth was driven by its practices in Western Europe and the CEE region, as well as its ‘advanced delivery businesses’, which cover its large Belfast legal services centre and its New Law operations, including Peerpoint and aosphere. Capital markets and tax were also highlighted for strong growth.
However, 2017/18 did not benefit from last year’s flattering movements in exchange rates, indicating a modest upturn in underlying growth.
nathalie.tidman@legalease.co.uk
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2017/18 results – London’s big four
| G100 Rank | Firm | Revenue | % change | PEP | % change |
|---|---|---|---|---|---|
| 7 | Clifford Chance | £1.623bn | 5% | £1.596m | 16% |
| 10 | Allen & Overy | £1.57bn | 4% | £1.64m | 4% |
| 12 | Linklaters | £1.52bn | 6% | £1.54m | 2% |
| 15 | Freshfields Bruckhaus Deringer | £1.403bn | 5% | £1.734m | 12% |