If you only read the stats, you would be forgiven for thinking that the LB100’s 26-50 group has struggled this year. The numbers are uncharacteristically grim for the second quartile: profit per lawyer (PPL) dipped 8% from £79,000 to £73,000 and profit per equity partner (PEP) dropped 3% to £633,000.
Revenue metrics are more favourable – average turnover grew a solid 8% to £167m from £154.7m, while revenue per lawyer (RPL) was up 6% from £273,000 to £290,000. However, this pales in comparison to the blistering growth of the LB100’s top 25, and is a far cry from last year’s eye-catching 19% hike in PEP among the 26-50 group.
Anecdotally at least, the message from law firm leaders of the 26-50 firms is far more sanguine. Many managing partners have reported growth in all sectors and practice areas, albeit with a sensible regard for potential economic headwinds next year.
In the context of a market otherwise rife with investment and consolidation, the cause of this sluggishness is difficult to pinpoint.
‘For our 2025 ambition, we decided not to set any particular monetary targets. Rather, we want to be up by double digits year on year and rely on that to give us significant growth.’ Karl Jansen, Freeths
The stance is not lost on Kevin Gold, executive chair of Mishcon de Reya. ‘It was a strange year for multiple reasons. The macroeconomic position was weird. We were in a post-Brexit environment, we were in a Covid environment and we were in the middle of potentially IPOing – it was pretty full on.’
Keeping pace
Nevertheless, many in the group had cause for cheer – among them Stewarts, as its high-risk, high-reward contingency fee-based model paid off in style this year. Turnover hiked by an above-trend 43% to hit £114m and propel the firm ten places up the LB100 table to storm into the top 50. Even more impressive was its eye-watering 93% boost in net profits from £30m to £58m, and a similarly strident 86% uptick in PEP from £1.4m to £2.7m.
The litigation specialist makes no secret of the sporadic nature of its financials, with managing partner Stuart Dench admitting: ‘In previous years, we have indicated that our revenue and profit patterns will be “non-linear”. That remains the case, as these results demonstrate.’
Perhaps a better poster child for the second 25 is TLT, recording another standout year headlined by a 31% jump in turnover to £144m. PEP growth was also pacey, increasing 38% to £826,000. According to managing partner John Wood, the performance was borne partly of a flight to value: ‘Clients have said: “Why am I using a big City firm when I could be using a national firm? Why am I paying the uplift?”’
Wood also reported growth across all practice areas, singling out the corporate and clean energy businesses as particular standouts. Perhaps most tellingly, Wood isn’t green with envy when looking around the market: ‘As a sector we are pretty resilient, but there’s no one I look at and think: “Blimey! I wish we were doing what they are doing.”’
It was an upbeat 12 months for fellow national firm Freeths, supporting Wood’s assertion that work is flowing in that direction. National managing partner Karl Jansen recalls the strategy, enshrined in 2015, which aimed to double Freeth’s revenue by 2020. Since achieving that goal, Jansen says the firm has ‘followed that trajectory.’ Last year, this translated to a 10% uplift in revenue to £110.1m, and a 24% boost in PEP to £636,000.
All of Freeths’ practice areas grew, though Jansen emphasised corporate, real estate and disputes, all of which experienced double-digit growth. He also highlighted the performance of the firm’s Bristol office – having been established in 2019 with just a team of two, the hub now has 40 members of staff and generates £4m in turnover. Jansen expects this to hit £7m in the next financial year.
‘The war in Ukraine impacted us a lot more than others given that our year end is the end of June.’
Edmund Reed, Travers Smith
Notwithstanding, Jansen is hesitant to repeat a prescriptive target for the firm’s next five-year strategy: ‘For our 2025 ambition, we decided not to set any particular monetary targets. Rather, we want to be up by double digits year on year and rely on that to give us significant growth. But we anticipate there will be opportunities for mergers or acquisitions of non-legal services, for example. Stuff like that can really propel you beyond your original strategy.’
On paper, it was also a decent year for Mishcon, with revenues climbing a healthy 23% to £230.7m. In practice, it has been an atypical time of turbulence. In September 2021 the firm’s partners voted in favour of an IPO, which triggered a host of partner exits in the following months, including a dramatic seven-partner exodus to Greenberg Traurig in October. Plans to list were then shelved at the beginning of 2022 due to ‘volatile’ market conditions, but the damage was done – a June 2022 Companies House filing revealed Mishcon had spent nearly £12m on its aborted float.
Add to this the 2021 combination with legal and consultancy business Taylor Vinters, as well as the impact of Mishcon’s launches in Singapore in 2020 and Hong Kong in 2021, and you have an understandably deceptive performance. In addition to soaring revenue, PEP increased by 11% to just over £1m, hitting pre-Covid levels.
Gold summarises: ‘There were these big macro themes [the investments], but those themes were consistent with our pre-Covid, pre-Brexit ten-year vision and what we wanted to become. The overarching theme is that we did rather well in having a broad vision and being able to execute upon that.’
Funny old world
Probably the biggest shock came from Travers Smith, a firm which typically rivals Macfarlanes in growth reliability. In revenue terms, a 5% jump to £195m from £185.7m was respectable, but PEP falling 9% from £1.22m to £1.105m while equity partner numbers remained essentially flat (increasing from 57 to 58) detracted.
Managing partner Edmund Reed says: ‘The war in Ukraine impacted us a lot more than others given that our year end is the end of June. Most other firms’ year end is much earlier. We had quite a long period of dislocation that occurred immediately upon that war breaking out. The firm is doing well and we’re really optimistic and confident for the future, but it has been a funny old world that we have been operating in.’
‘All our main areas have been busy, including retail and tech. Class actions are picking up, following the lead from the US. Not all trends from the US get picked up over here, but class actions certainly have.’ James Miller, RPC
Watson Farley & Williams’ new brooms, managing partner Lindsey Keeble and senior partner George Paleokrassas, also reported feeling the ripple effect in key sector specialisms. Paleokrassas comments: ‘It did impact us on the maritime side because we had clients who lent to the major Russian companies. We had a huge amount of involvement there. That generated a great deal of work and pressure, to ensure the clients and the firm could meet the ever-changing requirements.’
Overall, it was a solid year for the new leaders, elected at the end of 2021. Revenue swelled 6% from £177m to £189.7m, while PEP inched upwards 2% from £556,000 to £567,000 despite equity partner ranks expanding by six to reach 105. The leadership pair are clearly ambitious, as the firm plans to make a ‘huge push’ in energy, infrastructure and disputes, according to Paleokrassas.
Keeble sums up the year: ‘We’re known more on the finance side, we’re not a huge corporate powerhouse, which probably means we don’t have the boom years seen by some firms. We feel more confident that that means we won’t have big downturns either. It’s good, consistent growth.’
RPC’s results are mixed – including a 10% uptick in revenue from £136m to £149.4m and a 10% slump in PEP from £634,000 to £571,000. Managing partner James Miller qualified this by pointing to increased investment in IT, infrastructure and people, as well as new offices in Bristol. Equity partner headcount was marginally up, from 75 to 76.
Miller echoes common market sentiment that, while key firm focuses in litigation and insurance were ‘hot’, there has been a ‘softening’ in M&A and the private equity markets. Nonetheless, Miller is sanguine: ‘All our main areas have been busy, including retail and tech. Class actions are also picking up, following the lead from the US. Not all trends from the US get picked up over here, but class actions certainly have.’
Performance at listed firm Knights was typically eye-catching– its acquisitive nature tends to translate into wild results. This year was no different. On paper, the topline ballooned 22% from £103.2m to £125.6m however, on an organic basis (factoring out the buyouts of regional firms Langleys, Mundays and Keebles), revenue increased a more sedate 2%.
Underlying profit before tax slipped 2% to £18.1m from last year’s £18.4m. The firm pointed to disruption in the fourth quarter caused by the Omicron variant of Covid as a mitigating factor, but chief executive David Beech is upbeat, heralding ‘a positive start to the new financial year supported by the acquisitions completed in prior years’.
‘For me, the mid-tier and regional firms have an advantage right now. I think the bigger firms are at real risk after conversations I’ve had with general counsel.’
John Wood, TLT
Revenue and PEP dipped 1% and 2% respectively at HFW, which the firm attributed to a ‘prudent’ reduction in lawyer headcount during the pandemic. Turnover was down from £200m to £198.7m while PEP fell from last year’s record high of £683,000 to £669,000, despite equity partner numbers dropping significantly from 88 to 82.
HFW chalked up the PEP reduction to an end of pandemic-era cost savings: ‘HFW saw exceptional cost savings during the pandemic. These cost savings diminished during FY22 as countries across the firm’s global network began to return to normality.’
Nonetheless, managing partner Jeremy Shebson is ‘keen to see growth, moving well beyond £200m’, and is excited by the firm’s upcoming April 2023 move to ‘new modern premises’ in Bishopsgate. Shebson remarks: ‘Our culture is really important, and I hope people will be invigorated by this new space.’
Certain uncertainty
While there were ups and downs across the second quartile, there is unity in recognising the uncertainty that inevitable macro-economic disruption will cause.
For Jansen, the apprehension is tempered by opportunity: ‘The transactional side might get hard but it’s performing well for us at the moment. If you are doing just big stock exchange and big corporate projects maybe you’ll have some difficulty. When we went into the pandemic we had a drinks, hospitality and leisure sector team that we were quite worried about. But it turned out to be the best two years they ever had, so you just never know.’
For Wood, the uncertainty plays into the hands of the mid-market. ‘For me, the mid-tier and regional firms have an advantage right now. I think the bigger firms are at real risk after conversations I’ve had with general counsel. All of us keep pushing up the value curve. If clients’ businesses are going to find themselves under economic pressure they are going to look at the best value. They’ll think: “my regional suppliers can give me the best services at a lower price so why not choose them?”’ LB