Two years of merger mania hike firms’ turnover

The Lawyer’s annual report on the state of firms’ finances reveals some key trends – and promising signs

Over the past couple of years the UK legal market – and by extension The Lawyer’s annual UK 200 report into the finances of the top 200 firms ranked by revenue – has been characterised by mergers and consolidation across the country. 

It is a trend that has also had a significant impact on this year’s table.

There have been other significant changes too. New business models such as alternative business structures (ABSs) (firms that have secured external capital injections) and the UK’s first publicly listed legal company in the form of Slater & Gordon (which acquired Russell Jones & Walker) are starting to make their presence felt, but the most obvious trend continues to be the impact that consolidation is having on the top 200 hierarchy.

DWF swallowed up three firms

DWF alone swallowed up three firms in 2012/13, snapping up Scotland’s Biggart Baillie, Fishburns and the remnants of Cobbetts. Other major mergers last year included Shakespeares and Leicester-based Harvey Ingram; Pinsent Masons and McGrigors; TLT and Anderson Fyfe; and yet another north of the border deal in the form of Burness and Paull & Williamsons. The biggest deal of the year was the October 2012 link-up between Herbert Smith and Freehills. 

The consolidation is reflected in the total revenue across the top 200 last year, which stood at £19.045bn, a 4.4 per cent increase on 2011/12 in spite of the tough economic conditions. The top 100 firms’ contribution to this was £17.69bn, up 4.7 per cent. And the rise in the UK’s top 50 firms was even higher, at 5.2 per cent to £15.91bn.

However, the UK’s big four magic circle firms – Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters and Allen & Overy – are looking very flat on both revenue and profitability. 

Total revenue across this group last year was £4.876bn, 0.92 per cent up on 2011/12. Average revenue among this group was up 0.92 per cent to £1.219bn, while total net profit was £1.937bn, 0.005 per cent up. 

In contrast, the total net profit across the top 100 was £5.373bn, a 2.7 per cent increase matched by a similar rise in profit across the UK top 50 to £4.96bn.

By any measure, in a time of such austerity, this is a remarkable performance.


How the big four fared in 2012-13

Clifford Chance’s global revenue dipped by 2.5 per cent to £1.271bn. The figures mark the firm’s weakest result since 2009/10, when fee income fell by 5 per cent; however, the firm retained its position as the largest magic circle firm in terms of income.

Global managing partner David Childs said disputes and restructuring had been strong but this was not enough to make up for a quiet M&A year and the volatile capital markets, although he added that finance had done well. He also highlighted his firm’s preservation of its property practice, in contrast to some competitors’ sidelining of theirs.

Revenue generated in Asia-Pacific fell 3 per cent to £179m, forcing the firm to push back the target mooted in 2011 of doubling fee income in the region to £250m by 2014. Childs said the firm had changed the aim to 2015 or 2016. The region contributed 14 per cent of overall revenue.

UK revenue was flat at £443m, representing 35 per cent of the overall business.

Linklaters had a flat year. The firm reported global turnover of £1.195bn, down 1 per cent. The result meant the firm moved down by one place in the magic circle rankings.

The firm’s corporate practice had a particularly strong year, however, with key client Glencore spending legal fees of £18.3m on its merger with miner Xstrata, mostly paid out to Linklaters. Other key mandates included the Direct Line initial public offering, on which Linklaters advised the banks, Vodafone on its €7.7bn takeover of Kabel Deutschland and BP on the $27bn sale of its stake in TNK-BP to Russian state oil company Rosneft.

Allen & Overy also had a muted year, with turnover inching up 0.6 per cent and average profit per equity partner (PEP) static. This result repositions the firm as the magic circle’s smallest member by revenue, a position which until 2011/12 – when the firm overtook Freshfields Bruckhaus Deringer’s £1.13bn turnover – had not shifted for more than a decade.

Managing partner Wim Dejonghe admitted that the first nine months of the 2012/13 financial year were slow, but he claimed this changed towards the end of the financial year thanks to the strong recovery of capital markets.

Freshfields had the best year of the magic circle, with revenue jumping up 7.2 per cent to £1.221bn.

Litigation brought in a large chunk of the firm’s income. The global dispute resolution practice has grown by between 10 per cent and 15 per cent each year since 2008/09, causing the revenue it generates to balloon by about 50 per cent overall in that time. 

In 2012/13 dispute resolution was busier still, driven by a
hike in major investigations (including work involving the Libor scandal), international arbitration and competition litigation. 

The corporate team had a tougher ride, however. Its turnover floundered at about a third of Freshfields’ total revenue, caused partly by a difficult year in Asia.

London was Freshfields’ busiest office last year, although the firm was also busy overseas. It added a new office in Singapore, upping the firm’s total number of outposts to 28.