Legal Business Blogs

Comment: The age of turbulence has only just begun for the UK’s top 100 firms

Respectable, yes, but 2012/13 was a tough year, even by the post-Lehman standards law firm leaders have become accustomed to. While a frantic run of consolidation and international expansion pushed revenue up 8% to £19.1bn, like-for-like growth was far more subdued.

On all objective measures of productivity and profitability, there were further slides, even before accounting for inflation. Back-of-the envelope calculations indicate that the UK’s top 100 law firms are about 25-30% off their boom-time highs in real terms underlying profitability.

In trying to respond to that pressure there has been a genuine shift in gravity among the UK’s top 25 over the last half decade, with the group reborn in truly globalised form. When people used to talk about law being global, until recently they really meant six or so firms. Now it’s 20-plus. With SJ Berwin to join King & Wood Mallesons, and Ashurst this autumn to vote on full integration with its Australian partner, this group is to a considerable extent operating in a different space to the rest of the LB100. Average revenue in this group is just short of £600m, against £98m in the second quartile, while underlying profitability is nearly double that of the next 25.

If all that suggests the top firms are pulling away, it isn’t quite that simple. It’s more a case of moving into a different arena because, like-for-like, it’s not been a great 12 months for the top 25, with the exception of Freshfields Bruckhaus Deringer and Clyde & Co.

As I’ve remarked before, we’re moving into a far more fluid phase of the legal industry after the relative stasis of the 2000s. No one looks as unassailable as they used to, not even the Magic Circle, though this breed has yet to face a full-bodied challenge. As yet.

Elsewhere, the winners and losers divide up roughly. After a poor recession for national and regional leaders, there are signs of life in this camp, both in the firms asserting themselves on the international stage and the emerging national networks back home.

The shocking exception is Scotland’s legal elite, who have had a terrible year, even allowing for low expectations. The debate is now over – the aspiring dream of the Scots-based national is dead and buried. There are three viable options: merge and rationalise; submit to national takeover; rapidly retrench.

But there are plenty of firms who have proven able to adapt to the age of turbulence, including once again the insurance specialists, buoyed by plentiful demand at the premium end and a willingness to commoditise on volume work. A wide range of confident and focused players have likewise excelled amid the blustery market.

While seven top 100 firms saw revenues fall by at least 5%, ten firms organically hiked revenues by more than 10%. Such trends promise more upheaval. Confidence is rising in relative terms after last year’s turgid summer. But it won’t be enough to abate the harsh winds blowing through the profession. Not everyone will hang on.