Legal Business Blogs

Comment: US firms in London – ‘We haven’t been bullish enough!’

There was never any doubt that 2018 would prove another good year for US law firms in London coming off what has been a great decade for the breed. But it is only when you start to pull together the numbers that you realise how fast the City legal market is shifting in favour of American entrants. Legal Business has a reputation for being bullish on US firms in London. These numbers indicate that we haven’t been bullish enough. There are now more than 7,000 lawyers working in the London offices of the top 50 largest practices in London. Even stripping out the impact of including the legacy Berwin Leighton Paisner’s City practice, that’s an annual increase of 7%, a startling growth rate and one that is actually accelerating even as many expected investment in London to slow in the face of the UK’s looming exit from the EU.

And the overall numbers obscure just how dramatic that growth has been. Much of the action is coming in the top half of the 50 grouping, especially the ten largest practices that are increasingly settling into their stride in key markets like private equity, white-collar crime/investigations and leveraged finance. The ten largest practices alone made 54 partner hires during 2018.

Baker McKenzie, now in unusually aggressive growth mode, has more than 500 lawyers in London and no less than four firms – Dentons, White & Case, Latham & Watkins and Bryan Cave Leighton Paisner – all exceed 400.

The three pacesetters in London remain as in recent years Latham & Watkins, Kirkland & Ellis and White & Case. And consider the kind of business they are now generating. Kirkland and Latham are both closing in on $400m in the City and White & Case isn’t far behind at $350m. The top 50 is now generating well over $6bn in London and top firms have built 40-plus corporate teams, which is taking them into the kind of numbers that position them to directly challenge City rivals in their backyard in the near future. In a relatively subdued market the leading US law firms are accelerating the rate in which they take market share from City rivals. It is commonplace for major firms to currently generate 10%-15% City growth rates right now. Milbank, shaking off a lost decade in the City, managed a 25% hike from $125m to $156m. Quinn Emanuel and Simpson Thacher & Bartlett have both built lean but highly profitable London outposts.

Leading US players are likewise aided by another year of robust growth in their home market, with Kirkland hiking its income by a nearly $600m to drive revenues up 19% to $3.76bn. The firm would have to materially slow its pace to fail to crack $4bn during 2019, just two years after Latham and Kirkland became the first law firms to break the $3bn barrier. Latham, meanwhile, grew its topline by 11% and White & Case by 13.7%.

There is little doubt what is driving such performance. The firms that are making the most effective inroads into the City and Europe are driven by sponsors, either by heritage (Kirkland, Latham) or because they have gone through varying degrees of pivot towards alternative capital providers (White & Case, Sidley Austin, Milbank). As we address in our cover feature on Sidley Austin’s remarkable attempt to build a top-tier buyout practice from a virtual standing start, that pivot is typically happening as firms move to reduce exposure to major banking clients.

Global banks are no longer the kind of clients that can fire the growth of global law firms. In consequence, many look to the competing playbooks of Latham and Kirkland to work out what they can copy. There are a few outfits with heritage that lead them to tread a different path but for the majority with aspirations to compete in the global top 50, what choice do you have?

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