London’s big four have secured their place among the emerging global elite after what will be seen as a breakthrough year for the UK’s leading law firms.
Legal Week’s 2006-07 results, the first finalised picture of the performance of the UK’s top 50 law firms, shows the group achieving its second year of double-digit revenue growth with fees rising 14% annually to hit £10.5bn.
Average profits per equity partner (PEP) across the top 50 were up by 13.5% to power six firms past the £1m mark and take the average PEP from slightly more than £500,000 in 2006 to £569,500 this year.
The magic circle unambiguously led the field, benefiting from another busy 12 months for M&A and securities markets. The UK’s four largest firms generated £4.18bn in fees between them, accounting for nearly 40% of the entire top 50’s income.
With the inclusion of the smaller fifth member Slaughter and May, the magic circle also easily outpaced its smaller rivals to grow revenues by 16.6%, with Allen & Overy and Linklaters both adding more than £150m in revenue to their top line along the way. Profits growth neared 25% to send PEP past £1m for the entire group.
Clifford Chance (CC) managing partner David Childs said the results vindicated a decade-long run of foreign investment by the big four firms. He told Legal Week: “Our foreign offices are now maturing. We are seeing significant revenue increases from these offices and they are becoming more profitable. The model is proving itself.”
Norton Rose chief executive Peter Martyr conceded that the group was pulling away from UK rivals, commenting: “It is entirely reflective of the M&A boom. They are very large and more advanced in global structure and are picking up a disproportionately large part of the M&A boom.”
Chasing pack gets caught
The figures also confirm predictions that the traditional ‘tiers’ of City firms are breaking down as a confident band of upwardly-mobile practices — among them SJ Berwin, Berwin Leighton Paisner (BLP) and Macfarlanes — go head-to-head with traditional ‘chasing pack’ firms, such as Lovells and Norton Rose, that once enjoyed a relatively free rein below the magic circle.
Despite a generally confident performance from this section of the market, City firms outside the magic circle put in some of the most widely diverging performances in the top 50.
While Ashurst, SJ Berwin and Nabarro performed well above trend, large firms including Lovells and Denton Wilde Sapte struggled to keep pace.
Competition in this ‘first division’ has been further intensified by successful national practices such as DLA Piper, Eversheds, Addleshaw Goddard and Pinsent Masons. Belying their reputation as counter-cyclical practices trading on lower overheads, national and top regional firms managed above-trend performance for the second year in a row, cementing claims this group is becoming accepted as credible competition in the City mid-market.