‘The Lawyer’ reports: 2005 has been a year of recovery all round. The biggest sighs of relief were from magic circle partners. Average PEP for the big four of Allen & Overy (A&O), Clifford Chance, Freshfields and Linklaters was up a healthy 13.5 per cent from £630,000 to £713,000. Average magic circle revenue per lawyer was up 1.4 per cent from £353,000 to £358,000.
Meanwhile, the magic circle firms’ war on costs seems to be paying off. Average cost per lawyer, meanwhile, was down from £234,000 to £230,000. But forget the magic circle for now. They are too big and too far away for other UK firms to have a serious hope of catching them. Their combined revenues of £3.17bn dwarf the rest of the UK 100. Their combined net profit of £1.112bn accounts for 37 per cent of the UK 100 total net profit of £2.989bn. Their global battles are on a completely different scale from the rest of the UK 100.
While the big four go galactic, the firms behind them are competing in an entirely changed market. In any case, the tier beneath is the most interesting because it has changed year by year.
Ten years ago the dominant firms outside the magic circle (which then firmly included Slaughter and May, of which more later) were the chasing pack of Ashurst, Herbert Smith, Lovells, Norton Rose and Simmons & Simmons. Of that five, only Herbert Smith still appears in the top 10 in the PEP table. Ashurst is only slightly off the pace at thirteenth. Lovells’ bad year in 2005 saw its profits drop like a stone, while Norton Rose and Simmons are 20th and 28th respectively – and this has been a good year for Simmons, let’s not forget.
So, the internationalist model has simply proved too unwieldy for many firms. Norton Rose and Simmons waded into mud and got stuck. Denton Wilde Sapte (DWS) lost its way completely. Even CMS Cameron McKenna, once seduced by the internationalist model, is quietly refashioning itself into a UK practice with a strong European alliance.
While the internationalist firms have stuttered, the focus and the sheer ambition of a handful of formerly sleepy mid-size firms has transformed the market.
As The Lawyer reported in its news pages this summer and last, the firms powering up the profit and revenues tables are Berwin Leighton Paisner (BLP), Herbert Smith, Macfarlanes, SJ Berwin and Travers Smith.
BLP and SJ Berwin show what a little bit of drive and a focus on core principles can do. Macfarlanes and Travers Smith, meanwhile, have long pedigrees in the City – but never underestimate the difficulty of maintaining that position. Look what happened to old City blue-blood Stephenson Harwood, which 15 years ago was a top-drawer firm. It is now stripped of its elite pretensions and appears to be turning itself into a merger-friendly finance and litigation outfit.