Comment: Momentum – the little-discussed magic that can lead to big success

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Momentum versus quality. That’s the question for the upper reaches of the legal industry that is never on the lips of managing partners but probably should be. The industry likes to focus on partnership models, strategies, practices, geographic spread and culture. These are all fine up to a point but as major determinants of success, they get too much air time.

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24% of large UK firms earn more than half of revenues overseas

Nearly a quarter of UK law firms with revenues over £50m derive more than half of their turnover from overseas, according to a recent survey by Barclays.

Three quarters of firms surveyed by the bank, of which 73% have a presence in more than five countries, pull in more than 10% of their revenues from outside the UK.

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LLP filings show increase in net debt at leading UK firms

Debt levels at the top UK firms by revenue have increased to £185m compared to £138m last year.

Data taken from top UK firms’ annual LLP filings at Companies House reveals that Simmons & Simmons, Addleshaw Goddard, Bird & Bird and Herbert Smith are the most indebted of the leading firms.

Herbert Smith saw its debt level rise by £17m to just over £41m worth of net debt in 2010/11. It increased its overdraft facility by £11m to £18.6m with part of the new loan going to fund the fit out of the firm’s new Belfast office. The firm saw its turnover rise by 3% last year to £465.1m.

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SNR Denton – Strained Relations

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It is no secret that legacy firm Denton Wilde Sapte (DWS) has had a rough ride. During the 2010/11 financial year, the firm’s UK LLP (including the Middle East and Europe) posted an 8% decrease in revenue to £154.4m, while profits per equity partner (PEP) fell to an unimpressive £233,000. This represented a 34% drop (the second in a five-year period) on the previous year and saw the bottom of the equity take home just £156,000.

The EMEA side to the business sits at number 89 in LB’s profitability table, having performed better than just six firms in the entire top 100. But with profit per lawyer (PPL) at an all time low of £29,000 and a margin of just 13%, this firm has almost been run into the ground.

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City 50 – City Break

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With a few years of pain behind them, City 50 firms are feeling better. But is it still too early to bring out the champagne?

Previous concerns that London’s place on the global financial stage could be eroded seem to have been forgotten this year. While the UK economy is still in a state of flux, the capital has maintained its standing as one of the world’s leading financial centres, adding some confidence to the majority of the industry’s leading law firms. Average London revenue across the 50 largest firms in the capital fell by just 4% during 2009/10. Still feeling the aftershocks of the global financial crisis, the numbers made for tough reading. But after a more stable period, in part thanks to some canny management, an increase in litigation mandates, a recovering corporate market and a rise in financial work, the landscape doesn’tlook too bad. This year, City 50 firms saw revenues remain flat compared with last year. And while London offices continue to contribute less to international firms’ global turnover, there were still some impressive performances.

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North – Northern Echo

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The struggle continues. While the North peer group maintains its position and outperforms other regions, average revenue has grown marginally with the departure of DWF and Hill Dickinson, which have joined the Major UK firms group (see page 94). In last year’s review, these firms were £15m and £21m respectively ahead of the rest of the pack, and this year sees the gulf between the haves and the have-nots widen even further.

Weightmans is now the largest firm in the North group by revenue, and this lead will increase in 2012 when its recent acquisitive spree is taken into account. This year the firm added 200 staff through the acquisition of Vizards Wyeth’s London insurance team and its 1 May merger with Liverpool firm Mace & Jones.

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Central – Stuck in the Middle

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The absence of this peer group’s two leading performers, Mills & Reeve and Gateley, has seen averages for the Central region take on a distinctly ‘average’ hue. The region is now officially the worst performing peer group in the LB100 in revenue terms, a wooden spoon that it inherited last year from the South group and has secured once more in 2011.

The simple fact is that the majority of the firms that have Major UK status dominate this region of the market. Strip them away and what’s left behind are firms that are surviving on scraps.

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Global Elite – Scaling up

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With an unerring consistency, the UK Global Elite has maintained its grip on the market throughout the recession and 2010/11 was no different. Some will have hoped that the global law firm may become an endangered beast, but if anything the last few years have made them stronger.

While it hasn’t been easy for the global giants, there has been a fair bit of soul searching, cost cutting and re-jigging of business plans, which has resulted in this group of six firms holding tight to a 36% market share of the entire LB100.

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Cities colliding

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Several Global London firms were back on the investment trail in 2010 although overall headcount in the top 50 dropped. LB looks at the main movers in the City’s non-UK legal elite.

The UK economy may be suffering under the weight of swingeing cuts and, Germany aside, the prospects on the continent may still look bleak, but London’s large band of overseas law firms have not exactly been retreating into their shells. Many have been spying opportunities in the usual form of lateral partner hires, others such as Squire, Sanders & Dempsey and Sonnenschein Nath & Rosenthal have pinned their colours to a UK merger.

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