As the debate over the future of London as a legal hub in a post-Brexit world rages on, London boutique firms and City practices that occupy the second half of the Legal Business 100 (LB100) have quietly got on with business.
While in 2015/16 this group of firms was arguably the strongest-performing in the LB100, Brexit – and its prevailing effect on the UK real estate market – has proven a stubborn opponent. As such, while collective performance is short of previous years, for the most part these London firms have battled through uncertainty to record stable results.
Some firms have even gone one better and thrived over the last year. Litigation specialist Stewarts Law, for example, had its best year in revenue terms to date and its 25% revenue increase saw the firm leap up the table to enter the top 50 of the LB100 for the first time (see case study). In the second 50 this year, Penningtons Manches, Fladgate, Harbottle & Lewis and Gordon Dadds also saw double-digit income growth.
A total of 19 firms comprise the City and boutique group in the second 50, one fewer than last year. As such, total revenue for the set amounted to £728.7m, a 4% drop, while average revenue for the group climbed 2% to £38.4m. Average profit per equity partner (PEP) for the group fell by 16% to £366,000 – largely attributable to Stewarts Law, one of the most profitable firms in the LB100, moving into the top 50.
Typically the first firm to announce its financial results and often a bellwether for the wider cohort’s performance, revenues were unremarkable but stable at Mayfair shop Forsters, with turnover inching up 4% to £48.7m, the first time in years that it has not posted double-digit top-line growth. Real estate makes up over half of Forsters’ business and, with the sector being widely accepted as one of the most severely hit by post-Brexit uncertainty, the firm did not perform as well as hoped.
But managing partner Paul Roberts argues ‘Brexit was part-cause, part-excuse’ for the slowdown, noting that the real estate market was already showing signs of fatigue before the June 2016 referendum.
A major highlight was the hire of a four-partner private wealth team from Gowling WLG, which also included ten lawyers and has given the firm access to new offshore work, according to Roberts. In addition, former King & Wood Mallesons head of tax Heather Corben also joined Forsters during the last financial year.
‘Historically we have grown almost entirely through organic growth, however in the last 15 to 18 months we have recruited many lateral hires,’ Roberts notes. Despite the average performance, it remains one of the fastest-growing firms in the group, with revenue climbing 74% over a five-year period.
Elsewhere, Lewis Silkin underwent a rebranding process over the last year and Giles Crown, the partner in charge of its newly-titled ‘creators, makers and innovators’ division, says this exceptional cost contributed to the firm’s similarly ‘middling’ performance – which saw turnover barely move from £44.7m to £44.9m with PEP falling 18% – along with ‘external factors’, such as Brexit.
As a result of the revamp, the firm was split into two key divisions: creators, makers and innovators; and employment, immigration and reward. Crown says that while this was costly, the overhaul has allowed the firm to ‘break down silos between different divisions’ and will have long-term collaborative benefits.
‘Pensions regulators are flexing their muscles. It’s going to be a sea change from previous years. The next nine months are going to be frantic.’
Ian Pittaway, Sacker & Partners
Crown maintains that unlike other firms, Lewis Silkin was hit by a ‘general slowdown across the board’ in the months immediately following the referendum vote rather than disruption to any specific practices. ‘People were just not making business decisions,’ Crown says. However, the firm was buoyed by the uptick in transactional activity at the turn of the calendar year.
Another firm that appears to have hit the buffers after years of strong growth is pensions boutique Sacker & Partners, where revenue dipped 1% to £26.7m. The firm was also hit by a sharp 22% fall in PEP, a decrease that Sackers attributes to a number of planned partner retirements and associated payouts during the financial year.
Senior partner Ian Pittaway says the firm performed largely as expected and that Brexit did not have a huge impact. Rather, the relative financial slump was due to Sackers having a ‘particularly good year’ in the previous financial period.
But Pittaway argues that the pensions sector is due to pick up in the next financial year thanks to tougher regulations brought in following the collapse of BHS.
‘The regulators are flexing their muscles. It’s going to be a big sea change from previous years, everybody in the industry is talking about it. The next nine months are going to be frantic.’
Recording a particularly positive set of financial results was London firm Penningtons Manches, where revenues increased 13% to £69.6m. The firm’s PEP and net income grew by a striking 50% year-on-year.
Chief executive David Raine says that the firm saw an uptick in income across the majority of practice areas, and that investments in business development and IT infrastructure in recent years contributed ‘enormously’ to Penningtons’ success.
‘Looking ahead, we are confident that the firm will continue along this positive trajectory. We are cautious about the unknowns relating to Brexit but our underlying business model is strong.’
The best performer in top-line terms in the peer group was Fladgate, which saw double-digit revenue growth for the sixth consecutive year, up 90% since 2012. Turnover went up by a margin of 15% to £49.2m, although the firm benefited from an 18% increase in lawyer headcount.
Wedlake Bell was another respectable performer, with revenues rising 3% to £33.9m. PEP at the 54-partner real estate-focused firm saw a significant boost, increasing 12% to £372,000. The performance is even more impressive when considering that Wedlake Bell’s lawyer headcount has remained largely unchanged.
On a five-year track, full-service London firm Winckworth Sherwood has seen substantial growth, as turnover increased by 68% over that period. Over the last financial year, Winckworth recorded a significant 7% uptick in revenues measured against a modest 4% upturn in total lawyer headcount.
The firm that saw the greatest dip in revenue among the London and boutique outfits was Bristows, where turnover dropped 4% from £42.5m to £41m, despite headcount increasing by the same amount. As a result, profitability suffered, with profit per lawyer down 9% to £106,000 and PEP dropping 11% to £432,000 (still comfortably above the peer group average). It was also a disappointing year for Capsticks, despite winning panel roles with the Solicitors Regulation Authority and the Crown Commercial Service. The health, housing and social care specialist saw revenues fall by 3% and PEP decrease 2% to £315,000. Dispute resolution and criminal specialist Kingsley Napley had a mixed year, as PEP tumbled 22% to £294,000 despite a 6% rise in revenues and lawyer headcount increasing just 8%.
While London and boutique firms have not posted universally impressive revenues for 2016/17, they have shown resilience not to be swept away by uncertainty and have performed favourably compared to other peer groups. As markets across the board look to be picking up, this section of the market could be in for a more prosperous 12 months.
Says Roberts: ‘I’m moderately confident about our ability to do well’. Others take a more sceptical view. For Crown, the Brexit storm is ‘only just beginning’. LB
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Fastest-growing firms in organic revenues 2012-17
| Firm | 2012 | 2017 | % change |
|---|---|---|---|
| Stewarts Law | £34.9m | £77.9m | 123% |
| Osborne Clarke | £98.2m | £209m | 113% |
| Mishcon de Reya | £73.1m | £151.9m | 108% |
| Freeths | £36.7m | £72m | 96% |
| Fladgate | £25.9m | £49.2m | 90% |
| Howard Kennedy | £27.8m | £51.2m | 84% |
| Clyde & Co | £287m | £508.1m | 77% |
| Forsters | £28m | £48.7m | 74% |
| TLT | £44.5m | £74.6m | 68% |
| Winckworth Sherwood | £23.8m | £40m | 68% |
Slowest-growing firms by revenue 2012-17
| Firm | 2012 | 2017 | % change |
|---|---|---|---|
| Olswang | £108.1m | £96.6m | -11% |
| Hill Dickinson | £110.1m | £101.7m | -8% |
| Maclay Murray & Spens | £46.9m | £44.2m | -6% |
| Brabners | £31m | £29m | -6% |
| Ince & Co | £91.6m | £88.5m | -3% |
| Anderson Strathern | £21.2m | £21m | -1% |
PEP: 20 fastest-growing firms 2012-17
| Firm | 2012 | 2017 | % change |
|---|---|---|---|
| Wedlake Bell | £138k | £372k | 170% |
| Stewarts Law | £912k | £1,916k | 110% |
| Fladgate | £400k | £794k | 99% |
| Freeths | £249k | £479k | 92% |
| Nabarro | £332k | £606k | 83% |
| DAC Beachcroft | £258k | £432k | 67% |
| Osborne Clarke | £406k | £652k | 61% |
| Mishcon de Reya | £700k | £1,100k | 57% |
| Foot Anstey | £203k | £313k | 54% |
| Macfarlanes | £903k | £1,376k | 52% |
| Birketts | £197k | £291k | 48% |
PEP: 20 fastest-shrinking firms 2012-17
| Firm | 2012 | 2017 | % change |
|---|---|---|---|
| Lewis Silkin | £357k | £210k | -41% |
| Trowers & Hamlins | £481k | £312k | -35% |
| Olswang | £567k | £374k | -34% |
| Kingsley Napley | £400k | £294k | -27% |
| DWF | £408k | £300k | -26% |
| Ince & Co | £332k | £255k | -23% |
| Brabners | £254k | £204k | -20% |
| Capsticks | £389k | £315k | -19% |
| Bircham Dyson Bell | £300k | £247k | -18% |
| Maclay Murray & Spens | £270k | £229k | -15% |