If the mid-tier’s days are numbered why do they keep doing so well?

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We’ve had five years of unforgiving conditions for law firms, everyone agrees. And in many respects that squeeze has had predictable results on the upper echelons and lower half of the LB100. But this year it’s the mid-tier which has had the most interesting 12 months. This group should by rights and conventional wisdom be on its knees, yet judged on 2012/13 results they aren’t. Looking at organic growth, plenty of firms in the 26-50 range out-shone larger rivals and many of the stand-out performances this year – among them Mishcon de Reya, Holman Fenwick Willan, Macfarlanes and RPC – hail from this segment. Neither is this a one-year deal – there are plenty of firms in this weight class that have maintained a robust five-year growth track, powered by strong niches in areas like private client, TMT and insurance and a general affinity for contentious work.

It is a reminder that there is nothing inherently wrong with a domestic or mid-market focus. It is just one model with its own strengths and weaknesses. Executed with a genuine feel for those strengths it delivers not just well but sometimes spectacularly.

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

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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. Continue reading “The age of turbulence has only just begun for the UK’s top 100 firms”

The lingering enigma of BLP’s bad year

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Success is a mysterious beast. Hard to define, built up over years and often the result of a formula even its creators struggle to understand. But failure, well, that’s simple. When a law firm runs into difficulties you can point to bickering partners, problem offices, a weak client-base or an unworkable strategy. Whatever it is, there’s usually a clear narrative to explain the situation.

As such, the current rough patch at Berwin Leighton Paisner (BLP) is striking less in itself than because the firm seems surprised by – and unable to entirely explain – the situation. When BLP announced in May that it was consulting on deep redundancies, by many accounts even a number of senior partners at the firm were caught unawares. Continue reading “The lingering enigma of BLP’s bad year”

Dissent: Why the in-house triumph over law firms may prove short-lived

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Scott Gibson and Kristi Edwards argue that GCs have secured a short-term advantage over their external advisers at the risk of undermining their own position

In the decade prior to the collapse of Lehman Brothers, an excess of work masked the corrosive effect to law firms from competition with increasingly sophisticated and growing in-house legal departments (C&I teams). Post-Lehman, the economic downturn has exposed significant structural challenges to overstaffed law firms, which have been ruthlessly exploited by C&I to decisively shift the balance of power in favour of clients.

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Hogan Lovells was right to get hitched. It needs to remember that.

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I’m not a big fan of comparing law firm mergers to marriages. All those torturous metaphors and incongruous imagery. But in assessing the three-year old union between Lovells and Hogan & Hartson, it’s hard to escape the nuptial motif. The deal was forged amid high expectations and a simple analysis: both firms were better off together as neither looked compellingly positioned for an emerging elite of global law. Putting together a transatlantic merger of equals with two large firms that ranked just below the top tier in their respective markets made sense and was arguably a first for the profession.

But, as we address this month, the problem with raising expectations is that you’ve then got to meet them. And on that yardstick the firm has faltered. Three years in Hogan Lovells is still struggling for growth, the gap between its profitability and other global 20 peers remains too wide and the break-through in transactional work is elusive.

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The Asian century maybe but not the Asian decade for the Global 100

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The market for the world’s largest law firms remains as reliably turbulent as ever. The group as a whole eked out a 4% hike in revenues to generate $84.9bn, a figure slightly flattering underlying growth due to a handful of sizeable mergers – including the creation of Herbert Smith Freehills and King & Wood Mallesons. Revenue per lawyer was flat. In real terms, the world’s legal elite is once again modestly shrinking and headline income growth slowed in comparison to the 2011/12 year. Conditions remain considerably better than seen during 2009/10 but are a long way from pre-2008 boom years.

It has been another year that has re-enforced the overall dominance of US firms, largely due to the strength of the US economy and a delayed revival in contentious work. Of course, the relevant performance of UK advisers since 2008 looks considerably worse due to the sustained weaknesses of sterling and the euro but by any measure, the Magic Circle has lost some ground. Compared to their mid-2000s’ heyday, the profits gap against key New York rivals has again ballooned out, while a group of broad-service US rivals are now challenging their scale and global reach.

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To soar or crash with an Asian giant

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If you are going to finally do a global merger, it would be fitting for one of the most distinctive City practices to hook up with the great outlier of the Global 100. That is what is on the agenda for SJ Berwin as it this summer mulls an outline deal to combine with King & Wood Mallesons (KWM), the ground-breaking union between the top commercial law firms in China and Australia.

And what an outlier KWM is. When large mergers happen in the profession, a received wisdom among clients and peers soon takes hold. But since KWM was formed in March 2012, creating a 2,100-lawyer Asia-Pacific giant, consensus has resolutely failed to emerge. For some, it is a world-beater with an unmatchable position in the most powerful economic region of the 21st century. For others, it is a desperate act by two firms who had saturated their domestic markets and faced the awkward reality that their businesses won’t easily go global. After all, Australian and People’s Republic of China law travels badly and the increasingly heavily-lawyered and fee-sensitive Asia-Pacific region is currently struggling to live up to expectations.

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DISSENT: Do you know Titian? Berating law firms on social mobility belies commercial realities

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RollOnFriday founder Matthew Rhodes argues it is education – not an increasingly meritocratic profession – that is to blame for lack of social mobility in law.

Earlier this year Westminster School offered a mini-pupillage at a barrister’s chambers as a lot in a charity auction. The story hit the national press – The Guardian fumed: ‘Fancy a career in the law? A mini-pupillage with a criminal barrister can be Freddie’s for offers over £650.’ The Social Mobility Foundation complained, the Bar Standards Board felt obliged to investigate. All hell broke loose, over a week’s work experience for a teenager.

A bit of an overreaction? Given the kicking the profession is currently getting for not providing sufficiently broad access, perhaps it’s an understandable one.

I declare an interest: I went to Westminster. A few weeks before this story broke I attended a dinner for lawyers who had been at the school. The 80-odd guests that turned up included five High Court judges, the Attorney General and the President of the Supreme Court. From just one school. Alan Milburn, whose 2012 ‘Fair Access to Professional Careers’ report castigated the profession for not doing enough to encourage social diversity, would have had a seizure.

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Flying High – The Legal Business Global 100

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How the Global 100 has gone from turning over $71.6bn to $85bn in five years.

The world’s largest passenger plane, the Airbus A380, costs $403.9m dollars to buy. Mayer Brown, ranked 22nd in the Global 100, could buy one A380 with a year’s total equity partner profits. The equity partnership at Latham & Watkins and Skadden, Arps, Slate, Meagher & Flom could probably do a deal to buy three apiece – they almost earn enough cash.

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In defence of big – the maths are favouring two + two

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How many times do you hear lawyers roll out the line about mergers having to be two-plus-two-makes-five? True in many regards. Getting bigger doesn’t make you better or necessarily solve structural and strategic issues and mergers are hard to pull off effectively.

But when it comes down to it, this truism has become pretty misleading in Law Firm Land 2013.

Because scale does indeed matter in law, all things being equal. Bigger firms have the economies of scale – and these advantages are only getting more important given the continual shift towards smaller and more process-driven panels.

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