While smaller regional and national firms gained significant ground on their London rivals in last year’s Legal Business 100 (LB100) after years of the productivity gap widening in favour of the City, they have upped the ante again this year. Some of the strongest performers from the 31 regional firms in the 51-100 bracket have shown a resilience that sets them apart.
Following last year’s 7% overall revenue growth, the group’s collective revenue rose a Covid-defying 7% again to £1.46bn in 2019/20, for an average revenue of £47m. However, productivity per capita at regional firms, although always traditionally weaker than London counterparts in the Second 50, saw some retrenchment. Revenue per lawyer dropped 2% to £193,000, while profit per lawyer also fell 2% to £37,000. Average profit per equity partner (PEP), however, managed to move up 4% to £352,000.
Two listed firms in the second half of the table, Knights and Keystone Law (which do not have conventional equity partnerships and therefore are not included in cross-group profit calculations), had strong years in 2019/20 but have suffered since as the fallout from Covid-19 started to bite. The acquisitive Knights grew revenues by a striking 41%, after making its largest splash to date earlier this year, taking £28.6m out of its war chest to acquire two more regional firms, while also launching a £20m share placement towards funding the deals. It acquired Leeds-based outfit Shulmans for roughly £20.1m and South-East firm ASB Law in a deal worth up to £8.5m. The respective acquisitions saw around 220 fee-earners decamp to Knights upon completion.
In February, Knights also announced it had acquired Nottingham-based firm Fraser Brown in an £8m deal, which brought over 81 fee-earners. The firm also agreed a new £40m revolving credit facility split equally with HSBC and Allied Irish Bank last month. Overall, Knights now counts ten acquisitions since its listing. However, the firm announced in March that board members and staff earning more than £30,000 face pay cuts of at least 10% and some staff would be made redundant due to the impact of coronavirus. Knights struck a relatively bullish tone in terms of the limited impact the firm says it has seen on its revenue and cash flows to date, but nevertheless introduced a raft of cost saving measures given the uncertain outlook.
Chief executive David Beech commented at the time: ‘While we have traded in line with market expectations to date, we have decided to take a number of precautionary measures in response to the anticipated economic impact from the spread of the virus, to ensure maximum flexibility to respond to the changing market environment. The business is in a strong financial position and I am confident that the group’s strategy, supported by a talented team, will see Knights emerge from the near-term uncertainties in a strong position.’
Meanwhile, Keystone’s last full set of financials for the year to 31 January 2020 showed revenue was up 16% to £49.6m, with Keystone continuing a run of pacey financial results in recent years. Increasingly it is thought firms with a strong cash position are best placed to endure the economic uncertainty brought by the Covid-19 pandemic. Should that be the case, Keystone will feel confident after ending its interim period with a net cash figure of £6.9m compared to £3.4m in the same period last year.
‘We have continued to hire exceptional partners during these uncertain times and have made six hires where negotiations have been completed remotely.’
Joy Kingsley, JMW
The firm’s growth over the first half of 2020/21 was driven partly by new client needs in light of the pandemic, its financial director, Ashley Miller, told Legal Business. ‘While it has been a bit lumpy, what we have seen is a return of the business streams to where we were pre-Covid,’ he says.
‘It was a good start to the year until lockdown stopped things,’ Keystone’s chief executive James Knight says. ‘New client demand was down around 30% at one point though it is now almost back to pre-Covid levels.’
Elsewhere, there have been some standout performances, including two firms that shone in last year’s report, Leeds’ Walker Morris and JMW Solicitors in Manchester. Walker Morris has matched the 12% revenue growth for 2018/19 by increasing turnover to £55m, while PEP grew 21% to £718,000, in spite of a 29% hike the previous year and the number of equity partners being unchanged. JMW, meanwhile, grew revenues by 24% to £47.6m, while PEP has grown 23% to half a million pounds. The London office of JMW, which opened in May 2019, contributed £5.1m of revenue in its first year of operation, according to the firm, while the Manchester office billed £42.5m, a 12% increase on the 2018/19 financial year.
‘We have continued to hire exceptional partners during these uncertain times and have recently made six hires where negotiations have been completed remotely,’ says senior partner Joy Kingsley. ‘We are pleased by the continued growth of the firm across all of our departments and to have enjoyed another year of record financial performance. However, we appreciate that we are currently in unprecedented times and that our financial year end in April occurred before the disruption had a real effect. These are testing times for all businesses. The loyalty and commitment of the people who work for JMW has enabled us again to achieve this success and their talent and attitude will help us to navigate through difficult times.’
Bevan Brittan also enjoyed a year of double-digit growth, increasing revenue by 11% to pass the £50m barrier for the first time, matched by a 13% increase in PEP to reach £527,000.
Managing partner Duncan Weir says: ‘The 19/20 results now mark seven years of continuous growth with a 57% increase in revenue and an 86% increase in net profit over that period. This has been driven by a strategy focused upon a balanced client portfolio across a range of markets, investing in our client relationships and office and IT infrastructure and developing and recruiting the best legal talent that fits within our growth strategy. Our results mean that we have been able to implement our firm-wide 19/20 employee bonus scheme in full. And also to be able to make one-off payments to key support employees whose attendance in our offices from mid-March to the end of our financial year at the end of April (while many of us were able to work from home) was fundamental to finishing our year so strongly, despite lockdown.’
Another large South-West regional player, Blake Morgan, managed to grow its PEP by 8% despite only a 2% increase in turnover to £71.2m, using what managing partner Mike Wilson describes as ‘a different strategy’ to his predecessor over the last three years – saying goodbye to some equity partners to make way for a new generation (equity partner headcount is down five from 40 to 35).
‘We were on track for our best year for profitability up until March, on for exceptionally good profits surpassing previous results,’ he adds. ‘It was not as good as we had hoped in the end due to the last six weeks of the year with the pandemic. We set out our moderately ambitious budget in February, but by March we were back to the drawing board. We drew up a best-case, middling-case, and worst-case scenario and budgeted off the worst-case. We are trading 20% down compared to last year, but that isn’t as bad as it could have been. Last month we saw a good curve upwards.’
Ultimately he says – and this is a lesson for all firms in the LB100, not just the regional players in the Second 50 – it is an opportunity for firms to reset. ‘The industry response will depend on the law firm itself, there’s a lot of opportunity in the legal industry to leverage off this, those who have invested in IT will see the benefits of that. Firms in the mid-tier are in the squeezed middle; they will have to be agile and adapt or see parts of the business taken away.’ LB
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Last kings of Scotland
It is perhaps fair to say that the overall performance of Scottish firms in the LB100 over 2019/20 has been solid but unspectacular. All five firms hailing from Scotland now occupy the Second 50, after the surge by Ince Group and the appearance of Slater and Gordon in the 26-50 group edged Brodies down.
Brodies remains the highest-billing Scots firm by some margin and has the strongest five-year growth track (46%). It has managed to display its fiscal resilience, growing revenue and operating profit despite a significant Covid-19-induced slowdown during the closing months of the financial year. Revenue was up 7% to £82m from £76.9m, marking ten years of consecutive growth and a 20% increase over the last two years. Operating profits, meanwhile, underwent a more muted 3% rise to £38.5m while profit per equity partner (PEP) suffered a 5% drop to £673,000 amid headcount increases.
‘Like many firms, we made a fair bit of progress until February,’ says managing partner Nick Scott. ‘We were up more than 7% up until the last couple months of the year when we were impacted by Covid.’
Despite the pervasive economic uncertainty due to Covid-19 and a potential no-deal Brexit, Scott is sanguine about the firm’s prospects: ‘Like most firms we made projections throughout this period and we’re currently a bit ahead on cash collected and client activity,’ he added. ‘There is an opportunity there; there is a lot of demand and clients asking for our help with their operational difficulties but also their wider difficulties in their lives. There is an opportunity for lawyers to help clients make sense of it all. There will be many existing clients who will need our help but also new clients entering the market.’
Meanwhile, Legal Business’ 2020 Regional/Offshore Firm of the Year, Shepherd and Wedderburn, saw minor lifts in revenue (up 2% to £56.9m) and PEP (up 5% to £437,000). Managing partner Andrew Blain says: ‘We are pleased to report solid growth in 2019/20. Like many businesses, the last two months of the financial year were impacted by the pandemic and since then we have been operating in a very different and altogether more challenging environment. The quality of our lawyers and the depth of our expertise across all our practice areas and sector groups positions us well to continue to support clients as we emerge from the pandemic. We will continue to look to invest in talent and technology and to take advantage of the opportunities that present themselves this year.’
A close rival to Brodies and Shepherd, Burness Paull, managed by far the biggest increase in PEP of all the Scottish firms – up 15% to £500,000 – however this was against a 9% fall in PEP in 2018/19 and revenue only edged up by 3% to £60.5m. The firm said the benefits of bedding-in agile working systems and advanced document automation software in previous years significantly diminished the disruption presented by lockdown. Chair Peter Lawson says: ‘There is no doubt this has been a hugely challenging period. I have been a corporate dealmaker for 25 years, and being part of the firm’s senior team successfully supporting clients and employees while continuing to drive business growth over the last five months has been the biggest deal of my career.
‘The high-profile, premium transactions we’ve delivered during lockdown are testimony to our resilience. Investment in automation has really paid off and made us much more efficient during deals. The correct software selections are a big part of that, but it’s also about optimising teams and systems to improve consistency and efficiency throughout. Clients want problems solved and we are freeing up lawyers at all levels to work on doing the really important stuff, rather than getting bogged down in admin.’
He continues: ‘Some practice areas saw an initial drop in demand, especially the more transactional ones, but not as drastically as many predicted and we’ve since seen an uptick across those areas as lockdown measures have been gradually eased. We are fortunate our financial model is conservative and robust, with no debt and strong cash reserves, and as an independent law firm we are also able to respond quickly and nimbly to changes.’
Meanwhile, Harper Macleod, which has enjoyed a strong run over the past five years, growing revenues 37% to £30.2m, saw PEP dip 8% to £223,000 in keeping with so many firms across the LB100. However, this drop came against a 14% increase in equity partners from 35 to 40 in a year, showing that this firm, like other independent players, is focusing on the development of the firm as a whole rather than profit distributions.