Legal Business Blogs

The LB100 Comment: Smoke, turmoil and a tonne of cash

The latest financial year has not been a vintage period for those wishing the legal industry would fall into concise patterns. Glancing at the LB100, separating the winners and losers by breed is more difficult than at any time over the last 20 years.

But murky as the picture is, some broad outlines can still be discerned. The 2017/18 season was one of the best 12 months of trading since the banking crisis a decade ago reset the legal market.

Despite a backdrop of an increasingly fractious Brexit process, concerns over the UK economic outlook and the future of the City, trading was more robust than expected.

Consolidation flatters the figures, pushing the group’s revenue up 10% to £24.2bn, but even stripping that out, it was a respectable showing, with revenue per lawyer up 4% to £355,000. Profit per partner across the LB100 cranked up 9% to hit £805,000, aided by a marginal tightening of equity ranks. Consolidation and foreign expansion has continued to tilt revenue towards the top quartile. The top 25 UK law firms now generate £19bn of revenue, or 80% of the group’s income. A decade ago that share was 73%.

And yet it has been another indifferent year for larger outfits. This pattern has now been sustained for a decade and its implications for institutional legal services are as profound as they are commonly ignored. As our Global 100 coverage in July made clear, Magic Circle firms continue to grind along with insufficient momentum to fulfil their own global ambitions. And this pattern extends across the top ten.

Few in this hostile environment comfortably coast along – they move forward or fall back.

The strongest strata is less distinct than in previous years but is still largely defined by quality mid-market operators like Osborne Clarke, Fieldfisher, Macfarlanes and Travers Smith. The quartile comparisons mislead as it is firms ranked ten to 35 by revenue typically excelling. Above, the market is largely soft. Below, it sharply divides into operators aggressively hunting in a lower mid-market jungle and those failing to keep up. Few in this hostile environment comfortably coast along – they either emphatically move forward or fall back. When you see insurance law specialists like Hill Dickinson sell out of its core specialism you know it is tough out there for any firm not well adapted to its ecosystem.

Of the surprise performances to note, a second year of above-trend running from Simmons & Simmons stands out. Another year of this and the industry may wonder if its long-term malaise has been conquered. And the results from Travers and Macfarlanes are flat-out remarkable and deserve more consideration. If two firms with once-derided models can so comprehensively outpace the wider industry, not only this year, but on a five-year basis, then even more of the profession’s battered received wisdom should be sceptically revisited.

Much of the rest of the industry has considerably less cause for confidence. With some corporate work being funnelled ahead of the business-end of the Brexit process next year, and policy making in this nation becoming ever more dysfunctional, there are as many ominous trends and variables lurking as the modern legal profession has witnessed. That, if not much else, is clear.

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