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Global Focus Drives U.K. Top 50 as Firms Weather Global Crunch
Legal Week
July 18, 2008
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The
Legal Week's 2007-08 results, the first finalized picture of the performance of the
Total revenue across the group rose by 14.3 percent from 10.5 billion pounds ($20.98 billion) to just over 12 billion pounds ($23.98 billion), while the top 50 averaged revenue growth of 12.5 percent to bill an average of 241.9 million pounds ($483.4 million).
The performance will be seen as a vindication of the high-risk strategy of heavy international investment pioneered a decade ago by major
As expected, profit growth was far more subdued, with average profits per equity partner rising by 7.3 percent -- a fall from the 13.5 percent hike achieved across the group last year. The rise takes average PEP at a top 50 law firm to 616,200 pounds ($1.23 million), against 569,500 pounds ($1.14 million) in 2007.
The Magic Circle shrugged off initial predictions that the group would suffer badly from the prolonged turmoil in credit markets and the dearth of big-ticket M&A.
London's "big four" achieved total revenues of 4.82 billion pounds ($9.63 billion), with Freshfields Bruckhaus Deringer and Allen & Overy joining Clifford Chance and Linklaters to generate revenues in excess of 1 billion pounds ($2 billion).
Freshfields will be seen as the standout performer among its peer group, as the firm rebounded after its controversial 2006 restructuring to outpace its rivals.
Freshfields London management head Tim Jones said: "This is payback from many years of investing in our international network. There was a clearer focus on the business and there were also effects from our restructuring."
And while Magic Circle profit growth -- stripping out the one-off effect of Freshfields' restructuring -- fell substantially on the 24.9 percent achieved in 2007, substantial hikes in PEP will be seen as a significant result. Eight top 50 firms now have PEP in excess of 1 million pounds ($2 million).
The performance was also enough to see three Magic Circle firms win places in the global top 10 for profitability, closing the historic gap with their traditional rivals on Wall Street.
David Morley, senior partner at A&O, commented: "We are feeling pretty good about the year -- 15 percent growth in revenue is not bad given we went through nine months of the credit crunch. That reflects our long-term investment strategy."
CHASING PACK LEAD THE PACK
But while the headline figures indicate widespread growth, breakdowns of the top 50 results reveal widely varying performances, both between distinct bands of firms and individual practices.
In contrast to the commanding performance from the Magic Circle last year, the next tier of firms defied their critics to emerge as standout performers in 2008. Notably, Ashurst, CMS Cameron McKenna and Simmons & Simmons all grew their top line by more than 15 percent, while Herbert Smith and Norton Rose grew revenues by more than 20 percent. This group generally achieved growth in PEP well above the top 50 trend, with Ashurst and Herbert Smith both this year breaking the symbolic 1 million pound PEP mark.
"We are very pleased that profitability moved in the right direction [in 2007-08]," said Herbert Smith managing partner David Willis. "It is difficult to get the balance between short-term profitability and longer-term success, but we achieved that. Litigation and corporate had very good years -- your profits do not go up 25 percent if corporate is not pulling in the business.”
DOMESTIC WOE
In contrast, firms heavily focused on the domestic market struggled -- especially firms exposed to the
As such, some of the most consistent performers in this band, such as Berwin Leighton Paisner and SJ Berwin, this year saw a slowdown in growth, while LG barely grew its turnover. The notable exceptions were Stephenson Harwood and Field Fisher Waterhouse, which both managed above-trend growth.
But nowhere was the impact of a tough domestic market more clear than at some of the
National and regional practices saw the greatest falls in profits, with Halliwells, Dickinson Dees and Shoosmiths seeing PEP fall by more than 15 percent.
FROM PEAK TO TROUGH?
All eyes will now be on how leading firms perform over the next 12 months, given the credit crunch's sharp impact on the underlying global economy. In addition, steep rises in global commodity prices this year look set to keep interest rates high, increasing the chances of a painful "hard landing" in Western economies.
With 2007-08 results clearly inflated by a busy first financial quarter and runoff work from the boom market, the current financial year is tipped to see further reductions in growth. As such, Travers Smith enjoyed the mixed blessing of becoming a bellwether for City law firms thanks to its June 30 financial year and heavy exposure to the
The firm, renowned as one of the City's most cyclical practices, saw turnover up just 3.2 percent to 81 million pounds ($162 million), a dramatic fall on the 15 percent growth achieved in 2007, while average PEP fell by 7.6 percent.
However, a clear majority of firms are still predicting revenue growth in 2008-09 with Legal Week's quarterly business confidence survey this week finding 35 percent of respondents forecasting revenue growth of five to 15 percent over the next 12 months.
A comparison with the "slump" years of 2002 and 2003 also suggests that top 20
A five-year comparison (see box) underlines the long-term progress that some firms have made, with Linklaters, Addleshaw Goddard and Simmons having doubled PEP since 2003. Likewise, a number of top 20 practices have grown revenues by more than 50 percent since 2003, including Linklaters, A&O, DLA Piper, Herbert Smith, Ashurst, SJ Berwin, BLP and Simmons.
Linklaters managing partner Simon Davies commented: "This year will be more challenging, but our M&A practice is holding up well and we remain robust due to the natural hedge of our international business."
Will the top 50 stand up as the slowdown takes hold? Click here to have your say.
Click on the link below for the full table of results.
U.K. Top 50 2007-08
