Consolidation, planning, investment and ‘cautious optimism’ proved dominant themes for the smaller regional and national firms in this year’s Legal Business 100 (LB100). The 31 non-City firms in the 51-100 bracket grew steadily amid a slow summer and dip in confidence during the 2016/17 financial year. Last year, however, the group’s collective revenue only managed a weak 1% rise to £1.27bn, with an average revenue of £41m. While real estate and construction continue to boom, deal flows are noticeably beginning to slow for many.
While regional firms are typically less productive per capita than London counterparts, that gap has widened. Revenue per lawyer was £181,000, down 8% and much lower than the £264,000 in London. Profits tell a similar story: profit per lawyer down 10% at £38,000, against £80,000 in the City.
The contrast is most stark in profit per equity partner (PEP). While PEP grew 7% for regional firms, the £355,000 average still lags London’s £416,000, which grew 12% last year (albeit that figure was inflated – see ‘London stalling’, page 100). Only two firms in the second 50 based outside London have PEP above £500,000 – Scotland’s Brodies and new entrant JMW Solicitors from Manchester.
Northern buffers
Widely-publicised research from EY – which every Scottish law firm leader points to – claims Scotland was last year the second-most attractive part of the UK for inward investment after London. A large part of that was sterling’s devaluation after the Brexit referendum, but there are also claims the local market is recovering after a difficult year.
‘Corporate has had a fantastic run for the last five years and is really gaining traction. In the South East we’ve had a lot of work.’ Gavin Tyler, Cripps
Scottish firms have definitely hit the buffers in terms of year-on-year growth, however. Burness Paull, the second-largest Scottish independent, had a marginally better year than its main competitors Brodies and Shepherd and Wedderburn. Revenue rose 7% to £57.6m, while PEP climbed 11% to £475,000. Interestingly, however, the big three have identical revenue growth over the past five years – 49%.
‘Last year was a pretty flat year for the sector. This year there has been a bounce back. Oil prices are a big factor in the Scottish economy and Aberdeen is a significant part of our economy,’ Burness chair Peter Lawson says. ‘When we speak to clients, they see Scotland as a cracking place to do business.’
Brodies, meanwhile, lifted turnover a modest 3% to £68.6m, while PEP increased 4% to £608,000. Shepherd increased revenue 6% to £53.5m and boosted PEP 15% to £403,000, ensuring Scotland’s third-largest firm remained at the heels of its oft-cited rivals (see case study).
‘We saw really good activity, which has continued into this financial year. We’re now through into the second quarter of it and we’re continuing to perform really strongly, ahead of budget,’ reflects chief executive Stephen Gibb. ‘Real estate has been particularly busy and we’ve seen some big corporate deals over the last while too. People are just getting on with things.’
Elsewhere, Brabners was the exception in an otherwise flat northern England market, adding 8% to its top line to reach £31.4m. More impressive, however, was the 35% increase in PEP to £275,000, building on last year’s 22% increase. Ward Hadaway had another difficult year, as revenue again remained flat at £35.9m. However, new entrant JMW from Manchester has performed well, with the firm reporting a 30% increase in revenue to £32.5m while profit grew 26% to £5.8m.
Brabners managing partner Nik White, who took on the role in May, says the result was all about ‘doing things better’. The firm brought in a new chief executive, Robert White, to help drive change and improvement with a fresh perspective – White has no legal background and was previously managing director of gaming technology company Barcrest Group.
‘It certainly wasn’t rocket science. We’ve just been looking at our operational and financial discipline and doing what we’ve always done, but just doing it a little more rigorously,’ says White. ‘It proved to us that just by sharpening the pencil a little bit we can take a step forward: the big challenge is what happens next, because there’s only so much further that can take us.’
Southern lift
The south of the UK has continued its run of producing strong performances from a number of firms. Cripps saw impressive returns in the South East, but it was Ipswich’s Birketts again flying the flag for East Anglia.
Birketts climbs five places to rank 63rd in the LB100 after revenue rose 13% to £47.9m: up 66% over the last five years. PEP, meanwhile, rose 16% in what finance director Tim Sarsons describes as ‘a terrific year’, particularly as growth in property was matched by the firm’s corporate department. Private client work is also pulling in about £10m a year for the firm.
‘There are many businesses in the UK that are not only robust but have been preparing for Brexit for a long time now. The uncertainty is almost a norm.’ John Westwell, Foot Anstey
‘We are in a part of the world where we still remain relatively under-developed in terms of population and the focus of growth is very much on the residential property market,’ Sarsons comments. ‘Alongside that, even with relatively modest GDP growth across the UK, we are seeing a significant amount of corporate transactional work continuing.’
For Cripps, revenue lifted 9% to £31.7m, while PEP improved 15% to £313,000. Managing partner Gavin Tyler says the record year for the firm reflected growth across all parts of its business, but particularly in corporate: ‘Corporate has had a fantastic run for the last five years and is really gaining traction. Certainly in the South East we’ve had a lot of work.’
Geldards had a flatter year. Revenue at the firm rose 5% to £25.5m, while PEP was up 12% to £283,000. Chief executive Jeff Pearson says it was a year of consolidation for the firm, with corporate activity largely slowing over the past 18 months: ‘There’s just not an awful lot of transactional activity around, both in the East Midlands and Cardiff.’
Exeter outfit Foot Anstey again impressed in the South West, as revenue climbed 13% and PEP 18% to £43.3m and £370,000 respectively. Another firm with a strong showing was Bristol’s Veale Wasbrough Vizards, which added 14% in turnover for £36.7m last year.
Foot Anstey managing partner John Westwell says his firm, which has added 79% to its top line in the last five years, has been bolstered by strong growth in corporate and real estate. ‘We’ve found the marketplace to be active and robust, notwithstanding the uncertainty over the outcome of Brexit negotiations. But it doesn’t seem to have impacted us. There are many businesses in the UK that are not only robust but have been preparing for Brexit for a long time now. The uncertainty is almost a norm they’re living with from day to day.’
For regionals in the second 50 of the LB100, there are areas of growth in the South East and a handful of firms leading the way across the regions, but for most it has been lean pickings. Slowing deal activity and more difficult access to finance has weighed on growth, while improving profitability remains a challenge.
Westwell puts it this way: ‘Generally, last year was pretty strong for the legal sector – notwithstanding a flatlining economy – but the key is what sort of long-term investment is being made? What is critical for firms is not necessarily short-term turnover and profit growth but what they’re doing now to invest in technology to get a strategy in place that makes them robust against the challenge that’s coming, particularly with regard to routine work. The level of AI and commoditisation is going to make a difference.’ LB
hamish.mcnicol@legalease.co.uk
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