It has been another muted performance from the second 25, typically the strongest-performing group in the LB100 historically. Average revenue may be up 8% to £180.4m – in line with the LB100 as a whole – but revenue per lawyer (RPL) stayed flat at £289,000. Profit per lawyer (PPL) barely moved at £74,000 and neither did profit per equity partner (PEP), which more or less held steady at £629,000.
However, this performance is broadly in line with the other two groups in the LB100, where average RPL, PPL and PEP have barely moved either way.
Regional expansion
There is a distinct regional flavour to this year’s second 25, with firms headquartered outside London giving their London-based peers a run for their money.
Liverpool-led national firm Weightmans enjoyed the biggest revenue increase of its cohort, rising 21% from £103.2 to £124.8m. ‘Eleven percent of that growth is organic and 11% is around the merger with RadcliffesLeBrasseur. They’ve only been with us for 11 months, but we’ve seen growth in all our segments, with the biggest growth in private client, health, corporate and public sector bodies,’ Weightmans’ managing partner, John Schorah, explains. Notwithstanding that growth, the firm’s PEP rose by a more modest 4% to £310,000.
Considering the ongoing challenges faced by the mid-market, Schorah is cautiously positive that the war for talent is slowing. However, he warns of the rolling consequences of the recent salary escalations: ‘The war for talent has settled down but is turning into the war for clients. A lot of people paid top dollar for talent and now they’ve got to keep those mouths fed. I can see it being quite competitive out there when it comes to winning the work,’ he adds. In a famously competitive mid-market, firms may come to regret bowing to spiralling salary demands.
‘Would we pause on doing any of the things we are doing? Not at all, I don’t think there’s time to pause, particularly in relation to sustainability and technology.’ John Wood, TLT
Birmingham-led Gateley has also seen revenue rise substantially from £137m last year to £162.7m, a 19% increase. The firm credits its diversified business model for its strong performance, alongside the benefit of a full year’s contribution of its acquisition of Adamson Jones and Gateley Smithers Purslow the year before. Rod Waldie, Gateley’s chief executive adds: ‘During the year under review, both our legal services teams and consultancy teams performed strongly and we have made further progress in adding breadth and strength to our Group, expanding the patent and trade mark attorney offer on our business services platform through the acquisition of Symbiosis.’
However, all is not well in the regions. Following a banner financial year in 2021/22, Legal Business Law Firm of the Year award winner TLT, headquartered in Bristol, has faced an adjustment to its profitability with PEP dropping sharply by 27%. Nevertheless, its revenue has remained strong, rising by 9%.
Managing partner John Wood points to significant investments in its people, technology, sustainability initiatives and ‘more general inflationary pressures on top of that’ as the explanation for the fall in PEP.
‘That’s fine and it’s what we expected to happen. Would we pause on doing any of the things we are doing? Not at all, I don’t think there’s time to pause, particularly in relation to sustainability and technology,’ he explains.
Never comfortable
Scotland had a record-breaking year, with Brodies becoming the first independent Scottish firm to reach the £100m revenue mark, hitting £106.3m. The firm’s PEP increased by 4% to £842,000 and its revenue has grown by 8%.
The firm’s managing partner, Nick Scott, credits its unassuming approach as the driving force behind this success: ‘We are never comfortable. We should never expect that any of this is our right. And that’s one of the reasons why our firm has made progress.’
He is confident about the state of play in the Scottish legal market: ‘We will not be the last to get through the £100m milestone.’
Scott does, however, acknowledge that Scottish firms are now facing stiffer competition from UK wide and international firms. ‘If you look at the Scottish legal market over the last 20 years, more than half of the firms that were top-ranked two decades ago, don’t exist anymore. It’s either because they’ve failed, or they’ve been taken over or they’ve invited other people to run their organisation.’
‘They’ve been replaced by even more firms, all of which are international or national UK-wide firms. So, our market in one sense has got more competitors in it and yet we’ve managed to make progress,’ he adds.
This increasingly competitive market will face even more disruption in the next financial year, with the recent eye-catching mergers between Morton Fraser and MacRoberts, and Irwin Mitchell and WJM. Scotland’s legal profession looks set for a dynamic period of growth.
Despite storming into the top 50 in last year’s LB100 table, litigation specialist Stewarts has dropped to 56th place in this year’s rankings, falling out of the second 25. The firm’s revenue fell by a drastic 27% to £83m, while PEP plummeted by 56% to £1,219,000. Chalked up by the firm to its ‘non-linear’ growth pattern as a disputes-only law firm, its erratic movement is in stark contrast to the steady success enjoyed by firms taking a sector focused, full-service approach.
Watson Farley & Williams surpassed the £200m revenue barrier for the first time this year, with the firm experiencing a 14% revenue increase, bringing its total revenue to £215.4m. Its PEP saw a more modest 3% growth to £582,000.
‘We are first in class in a number of sectors in which we practice, and our ambition is to be first in class in all of them.’ Giles Kavanagh, HFW
Discussing its strategic approach, senior partner George Paleokrassas explains: ‘We are a sector-focused firm. Our core sectors are transport and energy, and we are beefing up our infrastructure work – with the view to that becoming a core sector. We are very actively pursuing this.’
‘Historically we were a finance firm, but we have grown significantly in M&A and disputes. In order to be a true sector firm, you need to be full service in all your sectors – our hiring strategy is to hire people who are core to the sector strategy,’ managing partner Lindsey Keeble adds.
This sector-led approach is also being taken by HFW, with respectable results. The London-based firm saw 13% revenue growth bringing its revenue to £225.3m. Its PEP rose by 19% to £789,000 from £665,000. ‘We are first in class in a number of sectors in which we practice, and our ambition is to be first in class in all of them,’ says global senior partner Giles Kavanagh.
Managing partner Jeremy Shebson emphasises the necessity of being able to provide a full-service offering: ‘Over a number of years we’ve been looking to build up a good network, a network that made sense, and that is tied in with the industries that we are serving.’
Economic reversals
Meanwhile, Travers Smith has faced another challenging year, with a series of high-profile partner losses characterising the start of 2023. These included respected head of private equity Ian Shawyer, its head of M&A and tax Jessica Kemp, private equity specialists Ed Ford, Sacha Gofton-Salmond and Genna Marten, and financial services partner Samuel Kay. This was followed by a frustrating financial performance for the firm, with revenue flatlining at £197.5m compared to last year’s £195m. Its PEP fared no better, falling 2% to £1.08m.
However, managing partner Edmund Reed was keen to point towards macroeconomic trends when considering the disappointing financials. ‘The economic environment has been difficult with high inflation and a European war. Our strategy has been to continue to focus on what our clients need, and we have managed to pull off a reasonably good set of results given the world going on around us.’
Shoosmiths’ chief executive David Jackson takes a similar view on the impact of macroeconomic events: ‘It’s been a challenging environment for all businesses. So, to have produced these results at a time of such turbulence in the market is pretty impressive.’ The firm sustained a modest 7% rise in revenue taking its turnover to £194m, while its PEP flatlined at £682,000.
‘High inflation and the war for talent in the legal market have been challenging issues to navigate. But we took the decision as a board at the start of the last financial year that we were going to prioritise investment in our people rather than trying to push hard on PEP,’ Jackson explains.
Macfarlanes is another firm to point towards events outside of its control as the reason for weaker financials. ‘The 2022/23 financial year proved a more challenging year for our firm due to difficult market conditions although the outcome was still satisfactory,’ explains senior partner Sebastian Prichard Jones. The firm’s turnover dropped 2% to £296.6m and its operating profit decreased by 6% to £151.4m. PEP was its most significant casualty, dropping 15% to £2.1m. These disappointing results have led to the firm falling into the second 25 in this year’s table, after placing at 25 last year.
However, in recent years some firms have gone out of their way to demonstrate that they are perfectly capable of causing trouble for themselves, without the need for a force majeure event. The beleaguered Ince, which has traditionally sat around the bottom 50 mark in the LB100 table, will not be gracing this year’s LB100 rankings following the SRA’s intervention into Axiom Ince. Following a turbulent year, including a missing £64m from Axiom Ince’s client account and allegations of dishonesty against Axiom Ince’s managing partner, the SRA has closed the firm with immediate effect to protect client interests.
Mishcon de Reya is another firm that has had its fair share of drama in recent years. After walking back plans to IPO at the beginning of 2022, due to ‘volatile’ market conditions, the firm was also hit with a record £232,500 SRA penalty over failing to comply on several counts with money laundering rules.
‘We took the decision as a board at the start of the last financial year that we were going to prioritise investment in our people rather than trying to push hard on PEP.’ David Jackson, Shoosmiths
Despite this, the firm’s financials, if not dazzling, are pretty robust. Revenue increased by 11% from the previous financial year, and PEP increased by 17% to £1.2m. However, when considering these results, it is necessary to bear in mind the boost the firm has sustained by completing its merger with Taylor Vinters in January 2023. This is something the firm intends to continue to capitalise on over the next year. ‘The focus for the year is landing that innovation, future-focused proposition with Taylor Vinters,’ managing partner James Libson notes.
Future proofing
While revenue has largely been sluggish among this year’s second 25 group, its managing partners hint at optimism for next year.
Paleokrassas comments: ‘We are quietly confident that this will be a strong year within our sectors, although we are very mindful of what is happening in the world economy. We will take account of this. Historically we as a firm, when there are difficulties in the market, have found they worked to our advantage.’
Wood is quietly confident that there are growth areas on the horizon. ‘It is really difficult to predict. You can never be quite sure where the economic circumstances will go. However, clean energy will remain a key growth area. We have elections coming up and whatever colour of government we get, they are not going to pull back on investing in clean energy.’ LB