The UK magic circle had a truly ropey year in 2004. Indeed, anyone espousing the cause of the European independent firmmight have felt vindicated. Average profits at the UK/European big four slipped across the board. Clifford Chance’s average profit per equity partner (PEP) dropped from €913,000 (£644,000) to £562,000; Linklaters’ from €1m (£734,000) to £674,000; Freshfields Bruckhaus Deringer managed £675,000 compared with €993,000 (£700,000) the previous year and Allen & Overy (A&O) recorded £609,000 after the previous year’s €952,000 (£675,000).
The disappointing figures were borne out in each of the European practices. Clifford Chance, Freshfields and Linklaters all dipped more or less the same amount in turnover ( €23m (£15.6m), or around 2 per cent of European revenue for each firm). Of the big four, only A&O managed a minor rise, of €4m (£2.7m), creditable in the circumstances, but hardly cork-popping. Yet history shows that the UK elite owes a vast amount of its growth to its investment in Europe, Clifford Chance’s merger with Rogers &Wells aside. Clifford Chance merged with major practices in Germany ( Pünder ) and Italy ( Grimaldi); Freshfields with BruckhausWestrick Heller Löber in Germany and Austria; A&O with half of Loeff Claeys Verbeke in Benelux; and Linklaters with Oppenhoff & Rädler in Germany, De Bandt in Belgiumand Lagerlof & Lehman in Sweden. And over five years, all of these mergers have delivered critical mass, virtually all of it in Europe. Freshfields has grown by 107 per cent, A&O by 102 per cent, Linklaters by 82 per cent and Clifford Chance by 62 per cent. There is no doubt that the UK magic circle is forming a European bulge bracket.
Their problem is less about market share (the four firms account for €3.78bn (£2.56bn), or 23.5 per cent, of the total market, up slightly in terms of revenue from last year’s €3.72bn (£2.52bn), but down proportionally from 25 per cent of the total in 2005) and more about adapting local economies to an Anglo- Saxon model of profitability. There are several different ways of going about this, although it usually involves a degree of tinkering with the equity spread. A&O, for example, has a stretched lockstep which operates various ceilings for its partners in Benelux and Central and Eastern Europe. Clifford Chance is actively considering this as well. Freshfields, through its merger of equals with Bruckhaus, has fewer problems on that score.
The Lawyer Euro 100 shows that the UK is still the biggest and most profitable legal economy. Fifty-four per cent of the firms in The Euro 100 are headquartered in the UK. That is not even counting practices such as Mayer Brown Rowe&Maw (MBR&M) and Jones Day , which in European terms are dominated by their UK, formerly independent City firm, components
Freshfields may be biggest in Europe as a whole, but is still only fourth by turnover in London. It grossed €502.5m (£341m), while the rest of its European practice, dominated by Germany, accounted for €549.8m (£373m).
Clifford Chance turned over €568.9m (£386m) in London and €411m (£278.9m) on Continental Europe. Linklaters turned over €558m (£378.6m) in London and €354.1m (£240.2m) on the Continent. At A&O the split was even more marked: €535m (£363m) in London and €308m (£208m) in the rest of Europe.
Inevitably, revenue per partner (RPP) in London is higher than in the rest of Europe for each of those firms. Part of this is accounted for by the exchange rate, but mostly because the UK charge-out rates are at least 30 per cent higher – and as much as 50 per cent in many cases. Freshfields’ RPP in London is €2.87m (£1.94m), while its European RPP is €2.29m (£1.55m).