In June, shortly before he became the British prime minister, Gordon Brown announced, “[This is] an era that history will record as the beginning of a new golden age for the City of London.” Meanwhile, New York was digesting the findings of a McKinsey & Company report, commissioned by Mayor Michael Bloomberg, on how the Big Apple might respond to London’s resurgence as a financial center.
More and more, investment bankers, hedge fund specialists and private equity dealmakers are being drawn to the city of sky-high rents, creaking infrastructure and lukewarm, $7-a-pint beer. M&A across Europe has soared — in 2006 more deals were done on the Continent than in North America, according to data from mergermarket — and more typically than not, the finance for these deals is raised in London. Fleeing Sarbanes-Oxley, more international companies are increasingly looking to list on Europe’s equities markets. Last year, more money was raised by companies on London’s junior AIM market than on America’s Nasdaq.
These new market dynamics have all played into the hands of the United Kingdom’s leading law firms — more specifically, the elite Magic Circle quintet. Allen & Overy, Clifford Chance, Slaughter and May, Freshfields Bruckhaus Deringer, and Linklaters dominate high-end corporate work in London and most of Europe’s major jurisdictions. In the last financial year the five Magic Circle firms all reported growth in profits per equity partner (PPP) of more than 20 percent. In the process, they have dispelled some views of the U.K. market held stateside — that the Brits are soft on underperforming lawyers, are blindly wedded to inflexible locksteps, and take too many holidays. As a group, the Magic Circle firms are gaining ground and in some cases surpassing their U.S. rivals.
In the latest issue of The American Lawyer magazine, we pay special attention to two Magic Circle firms, longtime rivals Linklaters and Freshfields. This year Linklaters’ soaring profits have put it among the 10 most profitable firms in the world.
Slaughter and May still has the Magic Circle’s highest PPP at $2.495 million, but most of its lawyers remain based in London. Linklaters has defied predictions that a firm could not grow a global practice of breadth and depth and still be as profitable as all but the richest New York firms. Under the guidance of managing partner Tony Angel, Linklaters has left its British competitors playing catch-up — especially Freshfields.
Both Linklaters and Freshfields have undergone significant change in recent years, transforming into integrated global businesses. But they have done so under starkly different management styles.
In the print edition of The American Lawyer, we look at the Magic Circle as a group, comparing their financial performances since 2000 with those of their U.S. competitors and some U.K. rivals.
We chose two comparison groups of U.S. firms: one comprising the 10 most profitable New York-based practices, from Wachtell, Lipton, Rosen & Katz to Cleary Gottlieb Steen & Hamilton, and a second group made up of the 10 U.S. firms with the most lawyers based overseas, including White & Case and Latham & Watkins — although not Baker & McKenzie, because its global model remains unique. Our financial data is drawn from The Global 100, which is based on The Am Law 100 and reporting by our sibling publication Legal Week and other sources. For details, see our methodology.