Results announced by the UK’s top law firms this week underscored a split along traditional lines.
Allen & Overy and Clifford Chance, known for their banking advisory work, reported solid growth in revenue and profits. Linklaters and Freshfields Bruckhaus Deringer, renowned as corporate advisers, reported more subdued results. Freshfields was alone in the so-called magic circle in posting a fall in revenue and profitability.
Freshfields retained its crown as the firm where partners earn the most on average. Average profit per equity partner, or PEP, an important recruitment tool, was just shy of £1.3m after a 1 per cent dip.
Ted Burke, Freshfields’ chief executive, said: “We want to be successful and we don’t want a decline in any indicator. But we don’t necessarily focus on PEP. The business over the year remains a very strong one.”
Clifford Chance, the biggest by revenue, enjoyed the healthiest performance, with revenue and PEP up by 7 per cent. It has historically had a lower PEP than its peers but its growth in profitability meant its PEP was close to that offered at A&O, at £1.1m.
Both firms opened offices in new markets, such as Morocco that helped to boost revenue.
Tony Williams, founder of Jomati, a legal market consultancy and former managing partner of Clifford Chance, said: “Revenue growth is relatively flat in real terms in the UK. For most firms growth is coming either from international expansion or major lateral team moves.
“The relative sluggishness of the mature legal market explains why firms are investing so much more in emerging markets as not only they but their clients are looking for growth markets,” he said.
Asia-Pacific galvanised all four firms, with all but Freshfields citing the region as the origin of strongest growth in fee income on a geographic basis during the 2011-12 financial year.
Clifford Chance’s revenue from its Asia-Pacific offices accounted for 14 per cent of firmwide turnover. This is the first financial year that includes turnover from its Australian operation, which was created after the firm acquired two boutiques in Sydney and Perth last May.
Australia remains a particularly favoured destination for UK-based law firms, with Linklaters announcing an alliance with Allens Arthur Robinson in April. They will not share profits, however.
David Childs, managing partner at Clifford Chance, said: “Two years ago we set ourselves a target of doubling to 15 per cent by 2014” the contribution to firmwide turnover from Asia-Pacific. “We are making excellent progress against that target.”
While emerging markets are important to sustained growth, all cited the US as a priority for the coming year. All want to build up their teams that defend in cases of white-collar crime and that undertake investigations for companies.
After a year in which a restructuring reduced the size of its partnership, Linklaters is keen on boosting its litigation practice, which would include a white-collar team. Simon Davies, managing partner, said he wanted to increase litigation’s contribution to firmwide revenues by 50 per cent over five years.
The magic circle is a loose grouping, broadly defined as the most profitable London-based firms that have large international operations. Slaughter and May, considered the UK’s most profitable firm, is not included because of its smaller geographic footprint. It does not disclose its financial results.