The LB100: Forex flatters market leaders but most struggle to find their form in another tough year
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.