Last year, delivering our annual results issue, Legal Business remarked that the age of turbulence facing law firms since the 2008 banking crisis was far from over. And so it has proved. Despite all the talk of returning confidence, and clear evidence of recovery in the UK economy, it’s still choppy out there. Stripping out another year of consolidation, the numbers are a little better than 2013 but that’s about it.
Mergers have driven the market to nearly £21bn in revenues but average partner profit of £640,000 across the top 100 is still a way off the all-time peak of £703,000 recorded in 2008. The world’s second largest legal market is tracking inflation.
Such choppiness has impacted on the LB100 across the classes. Many firms – particularly in the top 25 – are simply unable to sustain strong performances with one robust year being often followed by a soft 12 months. Clifford Chance and Linklaters put in confident showings against their peer group during 2013/14 but overall the Magic Circle has been playing defence for six years now. The group is not growing; inflation-adjusted, Freshfields Bruckhaus Deringer now generates nearly 20% less revenue than it did in 2009.
The top 25, of course, dominate the rankings in revenue terms thanks to continued globalisation and foreign mergers. But the jury is far from in on whether these deals will deliver strategic potency for the next ten to 20 years as opposed to just making such firms harder to challenge – well-defended vessels but lacking momentum.
But then 2014 has followed 2013 in fuelling doubts about whether the received wisdom that getting bigger is the boon it is often claimed to be in the legal market. Financial results over the last five years contradict the view of the globe-trotting world-beater, at least for advisers bred in the UK; larger law firms just do not have the momentum they enjoyed during the mid-2000s.
Ruling out transformative mergers, look at the top performers in revenue growth over the last five years: Mishcon de Reya; Kennedys; Osborne Clarke; Capsticks; Forsters; Watson Farley; Bristows; Browne Jacobson; Travers Smith and Gateley. Not much in common among this group except that five years ago every one of them had revenues of well under £100m.
By a similar token, second quartile LB100 firms generally earning between £150m and £75m a year, produced some of this year’s standout performances. While the benefit of avoiding the operational distraction of a sprawling network has long been recognised, it appears that this group is being boosted also by having a clearer section of the market to attack as larger rivals shift resource out of the UK and probably greater willingness from bluechips to carve up their work. If so, the better players in this stretch of water should be set fair for some time yet.
However, aside from questioning the benefits of scale, this year’s results are a reminder that nothing succeeds like success. The best-performing law firms are defined foremost by their individual businesses and partnerships, far more than their model or where they sit in the market. You set your own course.
Click here to access this year’s LB100