Several Global London firms were back on the investment trail in 2010 although overall headcount in the top 50 dropped. LB looks at the main movers in the City’s non-UK legal elite.
The UK economy may be suffering under the weight of swingeing cuts and, Germany aside, the prospects on the continent may still look bleak, but London’s large band of overseas law firms have not exactly been retreating into their shells. Many have been spying opportunities in the usual form of lateral partner hires, others such as Squire, Sanders & Dempsey and Sonnenschein Nath & Rosenthal have pinned their colours to a UK merger.
Methodology
The firms that appear in Global London are the 50 largest non-UK original firms in London, ranked by headcount. Partner and lawyer numbers were all requested as full-time equivalent averages for 2010. All partner hires are up to and including February 2011. Total lawyer numbers include partners, associates, assistants and trainees but not paralegals. Morgan, Lewis & Bockius declined to provide any headcount numbers so the data for it is taken from the Law Society. An average exchange rate for the year 1 January 2010 to 31 December 2010 was used for Global London. This was £1 equals $1.5458.
Our charts, unsurprisingly dominated by firms hailing from the US, rank the largest non-UK firms in London by number of lawyers. Baker & McKenzie, the original global practice, comes out on top with 364 lawyers in its London office – roughly the same size as Olswang. Further down the table, Latham & Watkins’ London headcount is up from 152 last year to 192. ‘Around ten years ago the firm set out an objective of growing organically and that has proved to be successful,’ Latham’s London head Nick Cline says. ‘We will and we do compete against the Magic Circle but the objective is not to compete with them on every front.’
White & Case saw its City revenues fall but more than a year since it saw a large finance and projects team defect to Latham things have settled down somewhat. ‘It’s bumpy and continues to be bumpy,’ White & Case’s London head Oliver Brettle comments on the prevailing market conditions facing City firms. ‘I don’t see sustained growth any time soon for the UK and globally I don’t see a boom economy any time soon either.’
There have of course been some tales of decline in the City, most notably Howrey’s demise. Although Howrey’s counter-cyclical bias had appeared to make it well set to grow in the current market, the firm’s City office had long been in decline. In 2004 the firm had been the 29th largest US practice in the City with 32 fee-earners but it had long been eclipsed by its more expansive US rivals.
Howrey’s departure from the global scene marks a two-year period in which it slumped from a $600m business to a shell through a combination of mismanagement, poorly planned international expansion and over-reliance on contingency pay outs. London had long been in decline. Developing a successful City strategy still eludes some.
A tale of two firms
In the course of 2010 Latham & Watkins clearly capitalised on the hiring spree it embarked on in late 2009, when it brought in 13 partners from White & Case. Last year it continued its impressive period of growth with revenues increasing 7% to £107m. As a standalone business, Latham’s City office would be 26th in the Legal Business 100, between Nabarro and Holman Fenwick Willan.
Along with its remarkable growth in total fee-earners, which now stand at 192, Latham now has more than 50 partners in the City. That’s a massive growth spurt, particularly considering that the firm went from 95 fee-earners in London in 2002 to 152 last year. The firm is now the fifth largest in our Global London rankings.
‘Success is always around hiring the right people and holding onto them,’ explains Cline. ‘You do that through the strength of your platform and also the strength of your culture. That has meant we have had a very good retention rate. If you get that balance right you are going to see a better set of numbers.’
‘I’d guess that we’ll see moderate growth in London with continued demand for English lawyers overseas.’
Oliver Brettle, White & Case
Latham has also been boosted by the boom in high-yield mandates – which has played into the hands of a select band of US firms – and its international network continuing to produce spin-off work. Among the major mandates the firm has advised on, a team from London advised Indian company Vedanta Resources on its proposed $9.6bn acquisition of oil company Cairn India.
Of course, in part because of Latham’s poaching, White & Case has struggled in recent years to hold on to some of its top performers in London. City revenues dropped in 2010, falling from £125.8m to just over £118m, but the firm has been back on the lateral trail to plug some of the gaps left by the Latham leavers. Total lawyer headcount still stands at 334, making White & Case the second largest firm in the Global London rankings.
Last year it added four laterals in London, including arbitration specialist David Goldberg from SJ Berwin and capital markets specialists Christopher Czarnocki and Michael Doran from Gide Loyrette Nouel. In the first three months of this year it has upped the pace, adding finance specialists Lee Cullinane and Jacqueline Evans from Mayer Brown and corporate partners David Crook and Gavin Weir from Freshfields Bruckhaus Deringer and Simmons & Simmons respectively. More recently the firm has added projects partner Caroline Miller Smith from Linklaters. In its most recent partnership promotions, the firm also promoted seven to partner.
‘We will continue to be full service but we want to be particularly strong in those areas – M&A, bank finance, disputes and project finance – where we’ve been making investment,’ says Brettle.
Commenting on the firm’s plans for future growth in the City he says: ‘Overall I’d guess that we’ll see moderate growth in London with continued demand for English lawyers overseas. The demand for English-law lawyers outside the UK is not abating. Many of our offices are saying they want English-qualified lawyers from London.’
City excess
Behind Latham and White & Case in the revenue rankings, Mayer Brown and Skadden, Arps, Slate, Meagher & Flom both saw solid top-line growth in the City in 2010. The former made £102m in 2010, taking it close to the £111m mark it was at pre-recession. Skadden meanwhile increased its City revenues by £4.6m to £87.9m.
Mayer Brown’s revenue gains came against a backdrop of falling headcount as the firm’s average number of fee-earners dropped by 9.5% to 305, including eight fewer partners. Global London headcounts dropped for the first time in 2009 and last year that trend continued. Total lawyer numbers sit at 4,182 in 2010 compared with 4,305 on the previous year.
The downward trend in headcount is symptomatic of firms coming to terms with the new marketplace. Letting natural attrition take place without unthinkingly replacing bodies. This more conservative attitude toward hiring at associate level is likely to continue, which shows that there’s still a lot of trepidation about the wider economic climate. However, partner-level growth is likely to be the bedrock for growth as a number of firms clearly feel that London post-recession is a good time to invest.
Greenberg Traurig Maher clearly falls into that camp. The firm effectively doubled its partner headcount year-on-year to 23. This coming year is arguably the most important for the practice as its hires must translate into top-line growth for them to be taken seriously.
‘We started with senior recruits and now we’re in-filling but we’ll continue to focus on the senior end as well,’ says London chair Paul Maher. ‘We probably need a corporate practice that’s twice the size of our current group.’
Likewise Ropes & Gray will have to deliver in 2011. Although the firm doesn’t make our top 50 this year, it looks set to next year. Its marginally more measured growth in London has seen the launch of a private equity practice in the City with the hires of Kiran Sharma from DLA Piper and more recently Peter Baldwin from Jones Day. While that may not have been the team they were originally after, Ropes does at least now have the transactional team alongside its banking and restructuring capabilities that on paper should justify the Boston firm’s entrance into the London market. ‘We’re a work in progress,’ admits Ropes & Gray’s London co-head Maurice Allen. ‘We want more corporate expertise and that means more support in areas like tax, competition and employment.’ Although the firm’s average headcount in London was 15 in 2010, by the year-end the office was up to 28 fee-earners, including eight partners.
While both look set to keep growing in the City over the next year, neither Ropes nor Greenberg are looking at London as a springboard to opening a wider European network. ‘I can’t see much more in Europe other than Germany,’ says Maher of his firm’s medium-term plans for the continent.
A combination of already very competitive legal markets and an economic outlook that looks bleak for several of Europe’s major economies has clearly had an impact.
‘We’ll get London bedded down first,’ comments Allen. ‘We’re open to other markets and Germany might make sense if the right opportunity came along, but my own view is that there might be one or two places we need to move into but don’t need a big network for what we do.’
Capitalising on the downturn
The investment climate may have changed on the continent and firms may be looking to control overall headcount to keep a lid on costs, but, post-credit crunch, many US firms have shown a willingness to invest in the City. Sullivan & Cromwell and Simpson Thacher & Bartlett, two of the more conservative American practices, have both made significant hires, taking finance partner Presley Warner from Freshfields Bruckhaus Deringer and funds specialist Jason Glover from Clifford Chance respectively.
Howrey’s demise has also thrown up opportunities, with Kirkland & Ellis last month taking the opportunity to launch an English-law competition practice by hiring Shaun Goodman. As the firm sees an increase in global M&A mandates, the need for merger control expertise is paramount. Together with the hires of young private equity partners David Arnold and Gavin Gordon from Ashurst, Kirkland has been back in growth mode.
Litigation boutique Quinn Emanuel Urquhart & Sullivan also took 2010 as an opportunity to expand taking two litigation specialists from Olswang and a further contentious partner from CMS Cameron McKenna. The office has now almost doubled to 20 fee-earners in the course of a year. ‘At the start we thought there would be demand for a litigation practice taking on cases against financial institutions,’ says Richard East, Quinn’s London head. Having spent time at both Cadwalader, Wickersham & Taft’s London office and then at Kirkland & Ellis, East has seen two very different approaches to opening in the City. From Cadwalader’s flurry of hires and later defections after it opened in the late 1990s to Kirkland’s initially more circumspect approach, East admits he’s learnt from both. ‘We’re trying to weave a path between the two models,’ he says.
Market conditions may be playing into their hands. ‘US firms have got a good bunch of people and some UK firms haven’t been happy places to be,’ suggests Allen. ‘They sacked a load of people, which upset some, and now you’re seeing better quality people leaving UK practices. It’s much easier to get people to move to US firms than it was ten years ago and US firms have a bit more appetite for investment.’
‘We’re open to other markets; Germany might make sense if the right opportunity came along.’
Maurice Allen, Ropes & Gray
But where investment has been hurried and arguably misplaced in the past, it seems that some lessons are finally being learned. ‘US firms are learning a lot more about coming into the UK – they are accepting differing ways of operating in areas such as accounting and remuneration. They’re much more sensible about what they can and can’t achieve,’ reckons Alan Hodgart, managing director at Huron Consulting.
If the global firms currently in London are set on chipping away at the established UK leaders then how will the next generation of US law firms enter the UK market? Greenberg and Ropes may have both launched greenfield operations but starting from scratch remains an expensive and time-consuming exercise. Niche launches such as Quinn Emanuel’s are a little less problematic but don’t expect too many more Greenberg or Ropes & Gray style sprees in the immediate future.
After Hogan Lovells, SNR Denton and Squire Sanders Hammonds, mergers will continue to dominate chatter in the market for some time to come – the question remains how many will get over the line and how significant will they be? ‘The mindset has moved on in recent years – people are more willing to look at much bigger deals,’ insists Jomati’s Tony Williams. ‘Firms are prepared to take on 250 to 400 lawyers as opposed to a few years ago when they were looking for businesses between 50 and 100 lawyers.’
No-one is predicting a significant bounce back in the wider economy in the foreseeable future but canny investment, whether through targeted growth or a large-scale merger, has put the global law firm in London in an enviable position. With a lower cost base and more room to grow, there is a window of opportunity for a small handful of firms in London to push home a competitive advantage over their UK counterparts. It’s what they do with it that counts.
‘You do need critical mass to compete,’ Allen comments. ‘Pre-credit crunch, a lot of US firms didn’t get to the right size in London; there’s a reluctance to continue investing.’ If the last year is anything to go by, some Global London firms have got some of their appetite back. LB