The U.K.’s largest law firms managed their strongest average revenue rise since before the financial crisis, according to this year’s Top 50 rankings, despite growing economic and geopolitical headwinds.
The firms grew their fee income by 10.9% on average in the last financial year, a noticeable improvement on the previous year, when the average rise was 5.9%. It was the largest average rise in revenue since the 2007-08 financial year, when turnover rose 12.5%.
Almost half—19 firms—posted double digit revenue increases, compared with 11 in the previous year. Only four firms posted a fall in revenue, compared with 10 in the previous year.
However the U.K. firms’ growth lags that of their U.S. counterparts, with the Am Law 100 recording a collective revenue growth of 14.8% for 2021, led by Kirkland & Ellis and Latham & Watkins.
The turnover increase did not translate into such a significant rise in average profit per equity partner across the firms, as they grappled to keep costs under control amid a rampant pay war for junior talent. Average PEP was £939,600, an average increase of 7.7%.
Although a rise, the increase in PEP was not as significant as in the previous year when it jumped 18.7%.
Average revenue per lawyer across the U.K. Top 50 was up 2.8% from £394,960 to £406,100, a similar rise to the previous year. Average profit per lawyer reached £135,100, a 3% rise.
In comparison, the Am Law 100′s average revenue per lawyer rose 12.5%.
A transactional engine
Law firm leaders said the strong performance came in spite of wider economic and geopolitical headwinds, with “the transactional market being the primary driving force”, according to Eversheds Sutherland International CEO Lee Ranson.
“Eversheds’ corporate commercial group grew just shy of 20%, and that’s not usual. They’ve had some good years in the past decade but that’s one of the more exceptional years,” he added.
Herbert Smith Freehills experienced a similar performance, with its ninth consecutive year of revenue growth since it merged a decade ago.
Alison Brown, the firm’s executive partner for the West attributed this to its “twin engines” the transactional and disputes practices.
Early indicators for 2023
But with caution is how most leaders are looking to the future. “Rising inflation and interest rates, the energy crisis, increasing regulatory scrutiny, disruption of global supply chains, and retrenchment of globalisation all top the list,” said Freshfields Bruckhaus Deringer’s London managing partner Claire Wills.
These factors impacting law firm income were also iterated by several others. Ranson commented: “We shouldn’t kid ourselves that we’re not in quite choppy waters. As always when it’s like that, firms that are prepared to seize the opportunities that come from that will do well. Those firms that hunker down may find the market very hard indeed.”
Wills added that Freshfields will be one such firm aiming to seize the opportunities, saying “this will impact cross-border, transactional and regulatory activity, and I expect our teams to be busy advising clients on the related challenges and opportunities,” as well as focusing on “mass claims in the U.K. and Continental Europe” in which the firm’s disputes practice has had particular success “not least because we are located in claimant-friendly jurisdictions”.
Others are taking a more positive stance, including Pinsent Masons’ managing partner John Cleland who is “optimistic about the outlook for the year” with the firm currently “trading in line with budget expectations”.
This year an updated methodology has opened up the table, with firms such as Birketts, Burness Paull and Keystone Law featuring on the list for the very first time. Now, for a firm to rank in the table it needs to have most of its lawyers in the U.K. than any other jurisdiction.
As a result, a number of firms previously sitting in the top half of the table are gone, including DLA Piper, Hogan Lovells and Bryan Cave Leighton Paisner, which all have more lawyers in the U.S. All will feature in the AmLaw 100 and the Global 200 rankings.