‘In the event of a recession, the lawyers will be fine. They always are. Unless you work at Ince.’ So quips one senior market commentator when discussing early indications from our Legal Business 100 research this year.
Indeed and notwithstanding the unfortunate Ince (if you’ve missed it, more of its embattlement in ‘Ince owns up to pensions gaffe as cyber attack wreaks £5m havoc‘), the message coming through from the UK’s top 100 law firms by revenue is positive. In fact, it is very bullish indeed.
Not to give away the crown jewels (and we are still awaiting data from some stragglers in the group), but the current state of play shows average revenue up around 9%.
Putting that figure into perspective, such growth far outstrips pre-Covid levels of performance, with the 2019/20 financial year yielding only a 6% collective uptick in turnover and an even more muted 3% increase during the pandemic, as recorded in last year’s report.
Individually, the proof that the LB100 firms are broadly restored to pre-coronavirus levels of activity – and beyond – is plain to see.
There have been some really striking double-digit performances, including a show-stopper in the form of TLT, which bolstered turnover by 30% from £110m to £144m, exceeding its £140m revenue target set for 2025 three years early.
Macfarlanes’ results are notable but it’s the astonishing 19% surge in PEP to £2.484m that has really got the market muttering in awe.
Other pacey revenue performers include Stevens & Bolton (24%) and JMW (25%), while at the top end of the table, Ashurst (12%); CMS (14% in sterling); Fieldfisher (15%); RPC (10%); Macfarlanes (16%) and Mishcon (22%) have been standouts.
Macfarlanes’ results, boasting revenue of £303.7m, are notable by any standards but it’s the astonishing 19% surge in PEP to £2.484m that has really got the market muttering in awe. The City stalwart has streaked well ahead of the Magic Circle on PEP and is steadily closing the gap between it and long-time PEP leader Slaughter and May.
So far, the picture is almost universally one of success, with only a tiny number of firms recording slight revenue decreases – including HFW, which has attributed a 1% dip in turnover for 2021/22 to a ‘prudent’ reduction in lawyer headcount (around 2%) during the pandemic. And despite this year’s muted results, both revenue and PEP at HFW have grown by more than 40% since 2015.
Overall lawyer headcount among reporting LB100 firms is up 3% on average so far, the same as last year, so firms have not boosted revenue merely by putting bums on seats. In fact, quite a number have fewer lawyers than last year.
For their part, the big four Magic Circle firms averaged a 9% increase in revenue and a 7% increase in PEP, stronger than the 4% and 5% respective growth in 2019/20.
Of course, there are plenty of ominous signs that this might be the last year of boom before an inevitable bust. There are obvious questions around how private equity, the engine room of many firms which have recorded such growth, would deal with a world of high inflation and rocketing interest rates. But for now at least, this is an academic question. It has for the last 20 years known little else but GDP growth and boom time on the back of cheap, readily available debt.
Anecdotally at least, deal activity has already taken a hit amid sustained problems with valuations, and private equity players will look to get their portfolios in order. For that, they will turn to their trusted advisers. The lawyers are always fine… aren’t you?
See our October issue for the full Legal Business 100 report.