Revenue from Dentons’ continental European practice grew 21% to €288m in 2017, as the firm recorded growth in all but one of its offices in the region.

In a year in which it completed its expansion into ‘initial priority markets’ on the continent by entering The Netherlands and hired 51 partners, the LLP – which includes the legacy Salans business – also grew net profit 20% to €95m. The figures were reported on a cash basis, but the firm said it recorded a similar growth in accrual terms.

Dentons did not disclose profit per equity partner but Europe chief executive Tomasz Dabrowski told Legal Business equity points increased their value by 10% last year and by 30% over the past three.

The German and Italian operations were the two standout performers, growing their top line by 32% to €61m and 92% to €22m respectively.

‘It was really encouraging to see the growth of our business everywhere – that does not always happen,’ said Dabrowski. ‘Hungary was the only exception, perhaps because the market is quite flat and there is a very small amount of foreign investment coming to the market.’

He added the growth was a result of the firm adding new offices and acquiring boutiques ‘but also the synergy between offices’. He pointed to the fact that the percentage of revenue generated as a result of referrals within the Dentons network grew from 26.5% to 28% in 2017.

‘We see the benefits of having offices in many locations, and the potential is still enormous because our practices in Italy, Luxembourg and the Netherlands are still relatively fresh but growing.’

In terms of practice areas, real estate exceeded expectations, corporate performed strongly and arbitration grew significantly, Dabrowski said. Key mandates included advising on OMV’s €1.4bn sale of OMV Petrol Ofisi to Vitol, while panel appointments included Société Générale.

The year saw Dentons merge with Dutch firm Boekel in Amsterdam , completing the strategy set out in 2014 to enter Italy, Luxembourg and The Netherlands.

Dabrowski said the Dutch practice was ‘booming’. ‘It exceeded budget expectations and we see a lot of interaction between that team and their colleagues in other countries.’

The firm also entered Georgia, acquiring an entire team from DLA Piper in Tbilisi and expanded our presence in Uzbekistan through a combination with local firm Avent Advokat.

Speaking of the plans for the upcoming year, Dabrowski said: ‘We are looking at the Nordic region – Denmark and Finland in particular – and Austria, which is an important market.’

He added that Switzerland and Portugal were also on the firm’s radar and concluded: ‘Our preferred approach is through full firm combination and we will be approaching our good friends that we know in those markets.’

marco.cillario@legalbusiness.co.uk

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LB100 firms weather initial Brexit turbulence but good times remain a distant memory

Flattered by turbulent forex markets, the UK’s largest law firms outperformed smaller rivals in the Legal Business 100 (LB100), as the group weathered economic and political headwinds through 2016/17 to eke out an ultimately indifferent performance.

While the top 25’s share of what is now a £22bn market remains unchanged at 75%, this cohort of largely international and Swiss Verein firms showed stronger growth across key metrics year-on-year, with average revenue up 10% to £686m, while average profit per equity partner (PEP) across the group grew 8% to £873,000. The result was, however, largely thanks to international firms accounting in sterling for work billed in euros and dollars. For example, Hogan Lovells, which earlier this year posted a 6% increase in turnover in its home currency of dollars, saw this jump to a 19% increase in sterling terms. The LB100 as a whole increased revenues by 9%, while average PEP was up 6% to £738,000.

Within the top quartile of LB100 firms there are seven with revenues of over £1bn, led by the Magic Circle’s big four, which on face value collectively posted their strongest performance since the start of the global financial crisis: average revenue was up 9% and PEP up 12%. Of these, Allen & Overy (A&O) surpassed strong results from Clifford Chance and Linklaters to emerge as the strongest performer with a 25% rise in PEP, which grew £1.21m to £1.51m, on top of a 16% increase in revenue to £1.52bn. On a constant currency basis, this amounted to a 6% turnover hike and a 14% leap in PEP. The strongest performer in last year’s report, Freshfields Bruckhaus Deringer, this year turned in what will be seen as disappointing revenues, with revenues barely moving despite the currency lift. However, with the group aside from A&O barely managing real-term growth, a trend that has been evident for five years now, there was little cause for cheer among the City’s traditional leaders.

James Palmer, senior partner at Herbert Smith Freehills, commented: ‘Overall, most firms are adapting quite well to the market we’re in. The profession as a whole globally is trying to take out cost.’

Many of the strongest individual performances across the LB100 came from the second 25 – typically the best-performing group in recent years. Standout firms include Fieldfisher, which has seen its expansion in core practice areas and geographies contribute to a 36% increase in turnover to £165m, while PEP grew by 16% to hit £639,000. Meanwhile, one of the biggest success stories of the last five years – disputes specialist Stewarts Law – posted 25% revenue growth to £77.9m, propelling it into the top half of the LB100 for the first time.

Other standout performances this year included Mishcon de Reya, which sustained a startling run of growth to post a 14% hike in revenues, and Pinsent Masons and Osborne Clarke, both consistent names in recent years, likewise showed robust growth.

But while quality mid-weight players generally demonstrated the strongest form, it was difficult to identify clear trends across the group in 2016/17 in what was a patchy market. National and regional players were generally poor performers, while the insurance sector divided between firms with international momentum to drive them, such as Clyde & Co and Kennedys, as the rest struggled with cost-cutting at major clients.

It was also an underwhelming year for many smaller City firms and some of the leading boutiques like Bristows and Sacker & Partners. While the promotion of Stewarts, and a relatively weak performance by firms in Scotland and the north of England, saw average revenue per lawyer, profit per lawyer and PEP all drop in the bottom half of the LB100, there were still pockets of resilience, including smaller London-based firms such as Boodle Hatfield, Fladgate and Penningtons Manches. Though firms in the South and Midlands also generally fared solidly, paralysis in the corporate and real estate markets as a result of Brexit was cited as a key factor across the board. As Jamie Martin, managing partner of North East practice Ward Hadaway, told Legal Business: ‘If the South East catches a cold, the North East catches pneumonia… in those circumstances I think we have done well.’

With the LB100 having to contend with the fallout of Brexit, and unpredictable elections in the US and at home, many will feel that the result has been respectable. Nevertheless, the UK legal market has been mired in the post-financial crisis malaise defined by patchy demand and more assertive clients, while major UK law firms have reached the limits of improved efficiency. All the while, the group faces the prospect of ominous trading conditions ahead.

mark.mcateer@legalease.co.uk

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This year’s Legal Business 100 coincides with the most inauspicious of anniversaries after a year with the most inauspicious of beginnings. A decade since the start of the global financial crisis and just over a year since the result of the Brexit referendum, the perception is that political and economic uncertainty has ultimately had little impact on the performance of top 100 UK law firms. Particularly on those at the top.

The drama has been well documented. UK and European markets continued to show resilience, mainly aided by foreign investment, despite the last financial year starting off with six to eight weeks of post-referendum impact. By Christmas, transactional practices were upbeat and grew stronger into 2017. Then article 50 was triggered just before the end of the financial year and unease settled in again.

Against this backdrop, total revenue and profits of the UK’s 100 largest firms showed their largest year-on-year increase in three years, both increasing by 9% in 2016/17, with combined revenue passing £22bn and total profits reaching £7bn. Average profit per equity partner (PEP) also grew by 6% to £738,000, as revenue per lawyer (RPL) and profit per lawyer (PPL) were both up 5% to £342,000 and £108,000 respectively.

The surge in profitability came despite modest increases in fee-earner headcount, as total lawyer numbers increased by 4% to 64,578 and the equity partner total moved up by 4% to 9,483. However, unlike in previous years, there was little in the way of significant law firm consolidation to bolster the overall top line, save for the full results of the 2015 combination of UK-based Wragge Lawrence Graham & Co with Canada’s Gowling Lafleur Henderson being reported for the first time and accounting for Gowling WLG’s ascent. Next year, the picture will change as the mergers of CMS Cameron McKenna/Nabarro/Olswang; Eversheds and Sutherland Asbill & Brennan; and Addleshaw Goddard and HBJ – all taking effect in 2017 – come into play. Another key Scottish player will also disappear from the table in 2018 after Maclay Murray & Spens is consumed by the world’s largest law firm by headcount, Dentons.

Some firms have seen significant increases in headcount after busy 12-month periods of brisk international expansion and firmwide recruitment, notably DWF (lawyer headcount up 21%) and Trowers & Hamlins (22%) in the top half of the LB100. In addition, firms such as DLA Piper and Clyde & Co also acquired a string of international offices in the last financial year. Cumulatively, firms in the top 25 added 25 new international offices to their network in 2016/17.

For others, there was a pronounced fall in headcount. Berwin Leighton Paisner (BLP) saw its fee-earner numbers fall by 12%, including scaling back in intellectual property as nine lawyers left the firm, while Ashurst’s losses in different locations – not just in London but also in Paris and in the US – meant its total lawyer numbers were down 6%.

‘Firms with significant non-UK businesses and which account for it in sterling will show growth without any real growth. The statistics will be completely misleading.’
Quentin Poole, Gowling WLG

Notwithstanding shifting fee-earner numbers, fluctuating currencies meant 22 of the top 25 firms recorded organic revenue growth this year – 10% on average – outperforming the second 25 on some key metrics for the first time in a long time (see ‘Core Stats’). The top 25 still accounts for three quarters of the entire LB100 revenue, while the bottom 50 firms only grew by 5% on average in the last financial year. The fact that many firms in the upper reaches of the LB100 bill significant proportions of their revenues in US dollars and euros has given them a natural hedge against a spiralling pound.

One billion club widens

The top seven firms – each with global revenues exceeding £1bn – did particularly well for revenue growth during the last financial year, aided by material impact from dramatic swings in currencies against the pound from their substantial foreign practices. Cumulatively, the one billion club is now worth more than £10bn for the first time; five years ago, this figure was just over £8bn.

Among them, Hogan Lovells saw an impressive 19% revenue growth in sterling this year. Significant gains have been evident at firms that account in dollars, which have benefited by an advantageous conversion into sterling for the purposes of the LB100. DLA Piper, which recorded a 3% drop in global turnover in its home currency, shows a 6% rise in this table, while Norton Rose Fulbright, which also had a 3% dip in turnover in US dollars, has reported an 8% year-on-year increase in sterling.

As Gowling WLG’s head of international projects Quentin Poole observes: ‘Those firms with significant non-UK businesses and which account for it in sterling will show growth without any real growth. The statistics produced this year by international firms will be completely misleading.’

‘A weaker sterling made the UK an attractive place for overseas investment, so we saw an increase in the M&A space and real estate – and we were on the receiving end as we have a well-balanced business,’ counters Osborne Clarke UK managing partner Ray Berg, whose firm accounts globally in euros.

Of the top seven, the Magic Circle enjoyed its strongest collective performance yet since the financial crisis. Jointly, London’s big four global firms have increased their market share and now turn over £5.83bn as a group.

Individually, Freshfields Bruckhaus Deringer failed to match its strong showing last time out, posting just a 0.2% revenue increase following its 7% jump in 2015/16. With the top line static at £1.33bn, a silver lining came via a 5% increase in PEP from £1.47m to £1.55m following a year of cost efficiencies. However, this does not hide the fact that average revenue growth for the group is 9% for the year, while average PEP is £1.49m (below Freshfields’ PEP) – but the growth rate is 12%.

‘While tech has a critical role to play, just standardising technological delivery is not the answer to everything.’
Matthew Layton, Clifford Chance

Managing partner Stephan Eilers says: ‘It didn’t go through the roof, but it was a solid year. Revenue was up a little, but in financial terms it was basically flat. PEP has grown in line with what we’ve done in the years before.’

As one Freshfields partner says: ‘We fell back £100m in revenue because we shrank the firm. We lost 50 partners, of course we’re going to lose revenue. And we’ve refocused; we’ve moved away a bit from financial institutions.’

The latest setback for the firm came when co-managing partner Chris Pugh stepped down from his role in July, less than halfway into his term. This was the second unscheduled c-suite departure since the team took up the role in January last year. In June 2016, executive partner Michael Lacovara left to join Latham & Watkins.

In contrast this year’s standout performer is Allen & Overy (A&O) – the strongest Magic Circle firm over the last five years – after a subdued 2015/16 (see case study). It grew its top line by 16% to £1.52bn and PEP by 25% from £1.21m to £1.51m (to put it on the same level as Linklaters). The results even show well on the ‘constant currency’ basis – preferred by some international firms to artificially eradicate FX movement – with revenues up 6% and PEP up 14%.

Clifford Chance saw the second-highest rise in revenue of London’s top four, with income up 11% to £1.54bn. PEP also climbed by 12% (2% on a like-for-like currency basis) to reach £1.38m. The firm revisited this year an overhaul of its lockstep, which is understood to give a select band of top performers the equivalent of 150 ‘super points’, against a current ‘core ladder’ of 40-60 points. Meanwhile, a growing number of partners in markets deemed to be less profitable are now capped at 70 points.

Highlight matters for the firm last year include acting for the winning consortium on National Grid’s £13.8bn sale of its gas pipe network and advising on the €12.25bn acquisition of pan-European logistics outfit Logicor’s warehouse business from The Blackstone Group by China Investment Corporation, the second-largest European real estate transaction on record.

Observing the currency effect, managing partner Matthew Layton says: ‘Our revenues are about a third in euros, a third in dollars and a third in sterling. So we were nicely hedged. We’ve also had a tight control on improving efficiency, productivity and the quality of the revenue all around.’

‘2016/17 was something of a rollercoaster ride for many businesses. Activity took a massive hit following the referendum and took a good three months to recover.’
John Joyce, Addleshaws

Meanwhile, Linklaters also saw a notable revenue increase of 10% to £1.44bn – a 2% rise in constant currency terms – as PEP increased by 7% to £1.51m. These results come after a 2016/17 working on a number of significant transactions, including also advising on National Grid’s sale of 61% equity interest in its UK gas distribution business. Linklaters also advised Unilever during a hostile takeover bid from Kraft which, had it succeeded, would have been the second-largest takeover in corporate history.

Given Linklaters’ fairly uneven run financially in recent years, managing partner Gideon Moore is more than pleased with how 2016/17 panned out, particularly given the political backdrop during the year: ‘If someone had told me at the beginning of the year that we would have this performance, I would have taken it.’

Best and worst of the rest

Despite almost universal revenue increases among the top 25, a handful did suffer reverses in profitability. And, as the only firm to have a dip in revenue this year, it is unsurprising that Addleshaw Goddard suffered the biggest descent.

Addleshaws’ PEP plunged by 26% to £504,000 from its record high of £679,000, a disappointing result for the firm that also saw a 2% fall in revenues from £201.8m to £197.8m. (However, the firm did say that revenue reported for 2015/16 included a conditional fee uplift and actual revenue was £194m, so turnover is up 2% on that basis.)

According to managing partner John Joyce, 2016/17 was ‘a very turbulent year, something of a rollercoaster ride not just for us but for many businesses. Activity took a massive hit following the referendum and took a good three months to recover’.

Despite entering the top 25 for the first time since the late 1990s as its revenues jumped 12% to £176.4m, Stephenson Harwood’s PEP dipped by 6% to £707,000, although equity partner numbers also increased by 9%. Managing partner Sharon White says the firm was expecting the drop and ‘as much as anything it’s about balancing the investment we need for the longer term health and growth of the firm against the short term’.

Meanwhile, BLP’s partner profits fell by 8% from £687,000 to £630,000, despite revenue increasing by 7% to £272m and its significant fall in lawyer headcount. However, the firm added to its partner ranks organically this year and reported its highest-ever promotion round, while at the same time investing in its alternative legal businesses.

Managing partner Lisa Mayhew says that the firm’s revenue was buoyed by a ‘discernible flight to quality’ in its real estate business. She also pointed to the 26 new partners that have been brought in as a key factor in its growth. Nine of the new partners arrived as lateral hires, while 17 were promoted.

Standout performers among the top 25 (minus the ‘One Billion Club’) in profitability terms included Ashurst, Pinsent Masons and DAC Beachcroft. After a tough year following disappointing financial results for 2015/16, Ashurst grew PEP by 11% to £672,000 as revenue also increased 7% to £541m. However, the firm lost a raft of partners over the course of the year, including the bulk of its Paris office to Freshfields and Gibson, Dunn & Crutcher, two Asia finance partners to A&O, three structured finance partners to Paul Hastings and financial regulation stars Rob Moulton and Nicola Higgs to Latham. But for managing partner Paul Jenkins, 2016/17 represents a significant turnaround.

‘It’s been a team effort. It’s been the matter of getting the right people in place across the firm that are leading our people with me and getting our partnership engaged. I am very happy with our results. It’s personally satisfying, but the important thing is that partners are very happy that we’ve set ourselves a target and met it. It means we can set ourselves a target that is even more ambitious this year and I have the confidence that we can meet it again.’

DAC Beachcroft was the leading performer in PEP terms, increasing partner profits by 21% to £432,000 from £358,000, despite only increasing revenue by 3%, while Pinsents’ PEP jumped by 16% from £552,000 to £638,000 as the firm broke the £400m barrier for revenue. Senior partner Richard Foley notes: ‘If you have momentum in your business you have to build on it. We’ve grown as a business by about a third in revenue terms over the last five years, so we’re obviously getting something right.’

The year ahead

‘It’s been a year of huge volatility and uncertainty – the achievements are particularly sweet in a year that was difficult, in a year where the tide was not rising’ – so says Herbert Smith Freehills (HSF) chief executive Mark Rigotti, whose firm produced 11% revenue growth to £920.5m after opting to report actual rather than currency adjusted financials for this year and last. And, while leadership at LB100 firms point to the spectre of Brexit lurking in the hinterland, few can identify specific effects on their business during the past year (see Last Word).

The profession as a whole globally is trying to take out cost and the winners will be those who sustain the service focus and deep teaming.
James Palmer, Herbert Smith Freehills

Instead the LB100 C-suite is focused on the tangibles and have worked hard to ensure, in the main, that firms are as resilient as possible to the actions of Donald Trump and Theresa May. The top-and-bottom-line growth among the top 100 firms shows they are committed to investing in new ways of delivering legal services in practice areas and geographies that can lead to revenue gains, along with improving the bottom line through greater efficiency and use of tech.

While it is clear that the top 25 firms continue their growth mode, rising costs and a crowded market have also continued to enhance the importance of technology and automation in business models. With Rigotti stating that alternative legal services now represent 5% of HSF’s revenue and A&O managing partner Ballheimer attributing some of its recent outstanding performance to its diverse portfolio of legal tech products and services, this has been tackled by different firms with various degrees of success.

‘A team leader’s job in the past was to make sure they have the people with the right skills, with the right clients and cost base. Moving forward, if it’s possible to automate or do something in a smarter way, that will be the norm,’ says Gowling WLG head of innovation and digital Derek Southall.

Overall, it seems that firms are starting to realise that investment in tech itself is not a silver bullet. The predicted end of lawyers as technology takes over has been oversold and key players are far more sceptical.

Layton argues: ‘At the end of the day we are still a relationship business and clients come to us because they trust in the individual relationships. So while tech has a critical role to play, just standardising technological delivery is not the answer to everything.’

Firms in the top 25 have shown their resilience, despite predictions of a very difficult market, and continued to outperform their peers in the rest of the LB100. But whether that is a sign of their practice and geographical diversity or a reflection of an increasingly crowded middle market continues to be debated.

‘Overall, most firms are adapting quite well to the market we’re in. The profession as a whole globally is trying to take out cost and the winners will be those who sustain the service focus and deep teaming,’ concludes HSF senior partner James Palmer.

‘Continued uncertainty in the UK market because of Brexit is unhelpful,’ says Foley. ‘Positively, the continued improvement in the way firms innovate to deliver legal services creates significant opportunities for some. Law is not a bad place to be. It would be nice to have more external market stability, but you can’t have it all.’ LB

Legal Business would like to thank Mason Hayes & Curran for its sponsorship of the Legal Business 100.

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Distribution of lawyers by region

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While the second quarter of the Legal Business 100 (LB100) has seen a 7% increase to £2.93bn in its combined revenue over 2016/17, the group has been impacted by further consolidation at the start of the calendar year, which will see around £230m stripped from this total in our 2018 report. This group is starting to feel the squeeze from those above and below in the LB100 – making it the most variable section of the top 100.

Over the last financial year the second 25 accounted for 13% of the LB100‘s combined revenue, with average turnover increasing 5% to £117m. Average revenue per lawyer saw a 7% leap to £272,000, while profits per equity partner (PEP) also increased by 2% to £495,000 (see ‘Core Stats‘).

But the dynamic will change next year with the disappearance of Nabarro and Olswang following their tripartite merger with CMS Cameron McKenna, which went live on 1 May. This will leave two places open for firms in the second 50 to move up into, with the most likely candidates regional players Shakespeare Martineau or Freeths, which both went past the £70m turnover mark in the last financial year. Adding these firms’ revenues to the second 25 and discounting Nabarro and Olswang would give the group a total revenue of £2.8bn, a 2% increase on last year’s figure.

Withers has fallen back into this group despite an 8% increase in revenue to £174.5m, largely because of the double-digit growth of Stephenson Harwood, which enters the top 25 for the first time since the late 1990s. Another new entrant has come up from the second 50 to join this group: it has been another standout LB100 performance from Stewarts Law, which saw a 25% increase to its revenues to £77.9m and a 19% increase in PEP to £1.9m, moving the firm up eight places to 47 (see case study).

Stewarts Law managing partner John Cahill acknowledged the impact large disputes – such as the £4bn The Royal Bank of Scotland (RBS) rights issue litigation settlement – had on the firm’s revenue, noting: ‘We don’t expect our results to match some neat linear pattern. We won’t be hitting the same revenue figure we hit in 2016/17 in 2017/18.’

Best and worst

Of the more established firms in the second quarter, seven saw double-digit growth in revenue. Watson Farley & Williams saw a 21% increase to its top line, bringing it up to £159.8m. Discounting currency fluctuations, the firm saw 10% growth in real terms, according to co-managing partner Chris Lowe. PEP also increased by an impressive 30% to £620,000.

Lowe notes that the environment over the last 12 months ‘has been difficult’ but says the firm’s success comes down to it ‘doing well in our little bubble. I like to think of it as a bubble of opportunity. We need to make sure we continue to focus on building our sector strengths’.

Lowe says he now aims to deliver a 700-lawyer practice with £250m turnover by 2020, although this has not yet been set as an official target.

Other outliers include Fieldfisher, which posted a 34% increase in its revenue for this financial year to £165m with a 16% increase in PEP, which sat at £639,000 (see case study), while both Holman Fenwick Willan and Ince & Co experienced a 16% boost to their top lines (see box ‘Choppy waters’, below).

The result was particularly impressive for Ince, which has battled with a three-year decline in its revenues due to the firm’s heavy focus on the struggling shipping industry. Even stripping the effect of FX movement, the firm has still seen a 10% increase in real terms, according to managing partner Jan Heuvels.

Heuvels says it has been a year of ‘investment and growth’ for Ince, which has worked to ‘modernise the firm’. It has invested in lateral partner hires, new offices in Marseille and Cologne and new technology. It also implemented a shake-up to pay for both partners and associates, rewarding high performers with a pot made up of a third of the firm’s profits.

‘It was a good year. Some of the more gloomy predictions made following the Brexit vote didn’t turn out to be true.’
Charles Martin, Macfarlanes

‘We have situations now where more junior equity partners have a total profit significantly higher than say an equity partner who has held equity for a longer period of time and has a greater base pay, but hasn’t had an exceptional year.’

The second 25’s most consistently high-performing firm and Legal Business Law Firm of the Year is Mishcon de Reya, which saw a 14% increase to its top line, taking the firm past the £150m mark following a string of high-profile mandates. Mishcon again also saw a healthy increase in PEP, which grew 10% to £1.1m.

Most notably, the firm launched a successful legal action on behalf of a group of business clients to ensure the UK did not trigger article 50 without an act of parliament. The firm also represented claimants who settled last year in the long-running £4bn shareholder group action against RBS.

‘Our litigation department had three or four monster cases in the last financial year,’ managing partner Kevin Gold tells Legal Business. ‘The Sainsbury’s case against Mastercard being a particularly important one. The Brexit case was one which we fell into.’

Two other consistently strong performers in this peer group, corporate specialists Macfarlanes and Travers Smith, had modest years by their own high standards, each recording a 4% revenue increase to post £167.6m and £125m respectively. Macfarlanes grew its PEP by 7% reaching £1.38m, but Travers struggled, with PEP falling 5% to under £1m.

After a year of uncertainty in light of the Brexit vote with this year’s general election throwing up more unpredictability, Travers managing partner David Patient is relatively confident about the firm’s result. ‘If you told me this time last year that we were going to have these results I would have said: “Great, thanks!” The months following the referendum was an anxious period.’

As for the firm’s outlook, Patient is wary of the hackneyed phrase ‘cautiously optimistic’. ‘The next couple of years will be very interesting. I have no idea what effect [these events] will have on the market. We could be navigating some choppy waters.’

Macfarlanes senior partner Charles Martin is just as sceptical of market chatter: ‘It was a good year. Not outstanding; it has had its challenges. But some of the more gloomy predictions made following the Brexit vote didn’t turn out to be true. The business held pretty firm: the results speak for themselves.’

Among those posting impressive revenue rises, there were some who saw a dip with BLM, Blake Morgan and Hill Dickinson all seeing a 1% decrease to their top line. Despite those ‘gloomy’ Brexit predictions and generally being less able to rely on the hedge of billing in a variety of international currencies as firms in the top 25, the group has managed to maintain relative strength given the odds. These firms, which are more exposed to the UK market than the international behemoths, have withstood an uncertain political environment on top of continued consolidation and significant pressure that the mid-market is facing.

As TLT managing partner David Pester says: ‘In our experience, after the initial shockwave of change, clients and law firms have worked out that you have to carry on and leave the things you can’t control aside. Pay attention to them but focus on what you can control.’ LB

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Which firms have the biggest UK business?

This table lists the top 50 firms by UK revenues. Once international fee income is taken out of the equation, the strong UK performance of firms such as Pinsent Masons and Eversheds Sutherland becomes apparent. Unsurprisingly, UK-centric firms, such as Macfarlanes, perform well, but it is interesting that all but a handful of firms have achieved revenue gains in the UK.

Diversity: gender balance at senior level

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The strain of macroeconomic conditions on UK firms is starting to show, as the immediate impact of last year’s Brexit vote meant many firms experienced a slow summer and a dip in confidence that carried on for many until the end of 2016 and even into the new year with the triggering of article 50 in March.

This uncertainty is reflected in some individual and regional results for this year’s Legal Business 100 (LB100). However, overall figures look strong. There are 31 non-City firms in the 51-100 bracket, compared to 19 London firms, with a combined revenue of £1.26bn, up 11% on last year’s £1.14bn. The number of regional firms in the bottom 50 has increased by one: a new entrant comes in the form of Scots insurance litigation firm Digby Brown, which has total revenues of £27.3m, while national firm Thompsons has dropped a few places this year to enter the bottom half of the table.

Average revenue for the regional group is up 7%, from £38m to £40.8m, ahead of the average income of the City and boutique firms in the second 50. However, typically regional firms remain less profitable than their London counterparts. Revenue per lawyer (RPL) stands at £196,000, compared to £257,000 for the London firms and profit per lawyer is £42,000 compared to £72,000 for those in the City. Profit per equity partner (PEP) is also significantly lower at £331,000 – although up a fraction on last year’s average – compared to £366,000 for the London-based firms.

Tough in the north

It has been a hard year for the Scottish firms. According to management at leading independents, general business confidence in the region was more affected than the rest of the UK due to the additional uncertainty of a second referendum on independence, which seems to have abated following June’s election and a poor result for the Scottish National Party.

‘The North East is the smallest region. If the South East catches a cold, the North East catches pneumonia. In those circumstances we have done well.’ Jamie Martin, Ward Hadaway

‘There was a bit of referenda fatigue in Scotland,’ says Burness Paull’s chair Philip Rodney. ‘We did a survey of a large section of our clients earlier in the year and they said they could get on with Brexit, but what was worrying them was Indyref2. Of course, following on from the election, the likelihood is that is off the table for the immediate future.’

The best performance came again from Brodies, Scotland’s biggest independent, although by its own high standards it has been a muted year. Revenue increased by 2% to £66.7m, while PEP dropped 2% to £585,000. Last year the firm had a much stronger year, increasing both revenues and PEP by 12%.

‘We have had periods of double-digit growth, we have had periods of slightly more subdued growth,’ reflects Brodies managing partner Bill Drummond. ‘Having regard to the market circumstances, we felt that the business and our clients reacted very well and the mood of the partnership was that in terms of business performance it was a very satisfactory year, bearing in mind that the vast majority of our earnings are in sterling and depend on client activity in the UK.’

Brodies’ main independent rival, Burness Paull, had a virtually flat year with revenues of £53.8m, while Shepherd and Wedderburn is down the most in the group following years of growth after its 2014 acquisition of Tods Murray. Revenues at the firm were down 5% to £50.5m, while similarly PEP was down 7% to £349,000. ‘It has been a year of differences really,’ says chief executive Stephen Gibb. ‘From the turn of this calendar year onwards we have seen things pick up a lot, and we are currently sitting 10% ahead of where we were this time last year and have got a lot of areas which are very busy. Immediately post the Brexit referendum, the Scottish market was affected more strongly than some of the other markets.’

Another of Shepherd’s main independent rivals has been consumed by a larger international firm. Having struggled over the last few years – with the worst five-year revenue performance of any regional firm – Maclay Murray & Spens will follow the path trodden by McGrigors and Dundas & Wilson and succumb to a rival when its takeover by the world’s largest firm by headcount, Dentons, takes effect later this year. Maclay’s turnover was slightly down to £44.2m from £44.8m, while PEP was down 7% from £244,000 to £228,000.

‘There was a bit of referenda fatigue in Scotland. Our clients said they could get on with Brexit, but what was worrying them was Indyref2.’
Philip Rodney, Burness Paull

Elsewhere, the picture is bleaker for firms based in the north east of England, which is traditionally a tough market. ‘The North East is the smallest region of the country,’ says Jamie Martin, managing partner of Ward Hadaway. ‘It is nothing out of the ordinary. If the South East catches a cold, the North East catches pneumonia. It is as simple as that. In those circumstances I think we have done well.’

Ward Hadaway had a difficult year, with PEP down 16% to £282,000, against flat turnover of £35.8m. According to Martin, there were challenging conditions for corporate in the North East, although it performed well in the North West and Yorkshire. ‘General commercial was down slightly, but every other part of the business was slightly up.’

Leeds firm Walker Morris also saw revenues dip 2% to £41.5m, although PEP was up 4% to £416,000. There was a similar story at Liverpool’s Brabners, which saw revenue dip 3% to £29m, but PEP soar 22% to £204,000. This can be attributed, at least in part, to the fact that the firm saw a decrease in equity partners – from 30 to 25. However, going against the trend, Wilkin Chapman in Grimsby had a standout year, with revenues increasing 7% to £22.8m, while PEP jumped 29% to £347,000.

Southern climes

It is a different story further south, with more strong performances from individual firms. Geldards – based in Cardiff – had a favourable year, with a solid increase in revenue of 7% to £24m, despite a 13% drop in headcount. Likewise, Birketts saw a jump of 8% to £42.3m, although headcount is up 13%. Geldards also saw a double digit increase in PEP, up 16% to £253,000.

In the South West, there is a more mixed offering. The yo-yo effect continues at Bristol’s Clarke Willmott, with turnover down 2% to £43.2m, while PEP fell 18% to £186,000. Last year the firm posted double-digit growth, with revenue up 10% to £43.9m and PEP up 14% to £228,000. Meanwhile, Exeter’s Foot Anstey continues its strong run of recent years, with revenue increasing 7% to £38.3m, although PEP stayed flat at £313,000.

‘When it comes to the South West, or the south of the country – the economy in the last year has been incredibly buoyant,’ says Foot Anstey managing partner John Westwell. ‘Most of the firms that rely on that geography in terms of the economy and clients have seen growth between five and ten per cent on the top line. It has been a reasonable picture for them.’

According to Westwell, there was double-digit growth for the firm across a number of practice areas, with banking and financial services up 15%, media and technology up 12%, and property, infrastructure and construction up 13%. ‘Another area which has been strong in particular was energy, and certainly the renewables are very strong at the moment in the South West.’

‘We have seen things pick up. Immediately post the Brexit referendum, the Scottish market was affected more strongly than other markets.’
Stephen Gibb, Shepherd and Wedderburn

Bristol-based Bevan Brittan had a slightly more subdued 12 months than the financial year 2015/16, with revenue increasing 3% to £39m, while PEP was up 4% to £317,000. Last year the firm saw revenue growth of 8%, while PEP was up 6%.

‘We have had a successful 12 months, with continuing revenue growth for the fifth year in succession and continuing to grow profits,’ says the firm’s managing partner Duncan Weir. ‘We are now benefiting from a clear strategy to broaden our markets and range of clients; to continue to invest in our teams; new hires; new technology; and the opening of our Leeds office.’

Other firms in the South West have seen revenues boosted by mergers. Withy King has seen its revenues jump 28% to £31.3m following the acquisition of Royds in London, while Veale Wasbrough Vizards has posted a revenue increase of 13% to £32.3m – although much of that can be attributed to the acquisition of a chunk of Watford-based Matthew Arnold & Baldwin in 2016.

In the South East, Moore Blatch’s revenue increased by 10% to £24.3m, while PEP was up 8% to £550,000. The firm did have a 19% jump in headcount, but the number of equity partners stayed the same. Another South-East stalwart and a consistently strong performer, Stevens & Bolton, had a tougher year, increasing its top line by 6% to £24.7m, however PEP dropped 11% to £326,000. In Sussex, DMH Stallard increased its revenues by 2% to £24.9m, but also saw PEP fall significantly.

Looking at the regionals in the bottom 50 of the LB100, those in the north of the country, particularly Scotland, have been hit harder by the political and economic uncertainty caused by last year’s Brexit referendum.

But, as Gibb concludes, it is still business as usual for most firms. ‘People are rolling up their sleeves. The second half of the calendar year there was a slowdown but now firms and business are just getting on with it.’ LB

kathryn.mccann@legalease.co.uk

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Madeleine Farman looks at the front runners and non-starters as reporting season kicks off

As the US financial reporting season begins in earnest, Milbank, Tweed, Hadley & McCloy leads the pack for turnover growth, while Reed Smith and Cadwalader, Wickersham & Taft both suffered a drop in revenues.

As Legal Business went to press, Milbank was the frontrunner with the highest revenue growth, up 11% last year to $855m, up $84m on the $771m the firm generated in 2015. Profit per equity partner (PEP) also increased by a healthy 13% to $3.1m. This brings strong growth after a lacklustre 2015, when the firm showed flat results in some of its key markets, posting a rise of just 1% in both PEP and revenue terms.

Latham & Watkins reported its seventh consecutive year of growth, announcing a 7% rise in revenue to $2.8bn as the firm added $173m to its top line. The firm broke the $3m mark for PEP for the first time, while revenue per lawyer also rose by 2% from $1.22m to $1.24m.

Global chair Bill Voge said the firm’s priority remains London and continental Europe. ‘We continue to analyse gaps in our global platform and continue to fill them both internally and through lateral hires. Simply, we continue to do what we have historically done and make sure we have the experts to satisfy that demand.’

Also impressing with a significant hike, Weil, Gotshal & Manges posted a revenue jump of 9% to $1.27bn with PEP increasing by more than 22% to $3.1m. This is in contrast to 2015, when Weil posted a 1% rise in revenue to $1.16bn and comes after a prolonged period in which the firm had struggled to sustain growth.

‘We worked hard to manage out lawyers last year, which naturally results in less revenue.’
Sandy Thomas, Reed Smith

In contrast, Reed Smith saw a 4% drop in revenue last year, slumping from $1.12bn to $1.08bn, following a 3% fall in revenue in 2015. However, the firm saw a slight increase in PEP, recorded at $1.11m, up from $1.05m, while the number of lawyers fell by 5% from 1,618 to 1,537. Global managing partner Sandy Thomas said the fall in top line was due to a substantial cut of 81 lawyers from total headcount.

‘We worked hard to manage out lawyers last year, which naturally results in less revenue. However this is consistent with our strategy; if you look at the other metrics they are all up.’

The results follow the firm’s hire of what is understood to be the largest group of lawyers from collapsed King & Wood Mallesons EUME – a move that adds 10% to its European headcount. The US firm has hired 50 fee-earners, including 17 partners, three counsel, 22 associates, one jurist, seven trainees and nine other support staff.

Cadwalader also had a second year of falling revenue, confirming a 3% drop in turnover to $452m in 2016, against a 4% drop to $463.5m the previous year. However, PEP increased 3% to $2.1m, while overall headcount fell 2% to 438.

The shrinking revenue coincides with the closure by Cadwalader of its offices in Beijing and Hong Kong, which were announced in the autumn, with the firm also set to shut its Houston arm as it refocuses its efforts on its core Wall Street client base.

madeleine.farman@legalease.co.uk

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