U.K. Top 50 results are coming in thick and fast. Just this week about 10 major law firms have announced their financial performance figures. What do the early numbers tell us?
In general, revenue has risen around about 10%. Clifford Chance, Allen & Overy, Herbert Smith Freehills, Ashurst, Simmons & Simmons, Bird & Bird, Taylor Wessing, Shoosmiths, RPC and Gateley are all in the 6% to 13% range.
Average profits per equity partner numbers, meanwhile, are splitting into two camps. Some firms, such as Eversheds Sutherland, Ashurst and Taylor Wessing all managed rises of 14% or more, while the likes of A&O, Simmons, Shoosmiths and RPC were all disappointing: either a very slight rise or a fall.
Given we have a long way to go the picture could change significantly, but based on what we have seen so far there are a few implications for the U.K.’s top tier legal industry.
A few takeaways:
- This growth is less impressive than in the U.S. In 2021, the vast majority of AmLaw Top 50 firms experienced strong double-digit revenue and PEP growth. There are several reasons for this—the U.K. financial year meant that U.K.-based law firms didn’t include Q1 2021, which was great, and did include Q1 2022, which wasn’t as good. The U.S. economy has been rampant. And firms that bill in dollars for cross-border transactions will have benefitted from the strong dollar exchange rate. Even so, the uncomfortable truth is that U.S.-based firms are growing much faster.
- The U.K. numbers might get worse. Often it is the most confident firms that announce first and the firms that are a bit nervous wait until ‘results fatigue’ has set in before they unveil a dismal set of figures. There will still be plenty of strong performers to come too, of course, but the worst results never come in the first batch. All of which suggests the U.K. Top 50 as a whole will be a long way off the 19% average PEP increase it achieved in the 2020-21 financial year, though it could beat the average 5% revenue rise that year.
- Next year is unlikely to bounce back. Few law firm leaders are expecting much of a rise in this current financial year, ending April 2023. A looming recession after a year of heavy investment in junior staff on enormous salaries does not bode well for the future. In other words, costs are rising while revenue is stagnating meaning profits are set to take a hit. The only consolation will be that high inflation is making rate rise conversations with clients a little easier. Yes, firms may yet find more cost savings on office rentals, but this Linklaters story this week suggests that those could be small.
In a week when the U.K. recorded its hottest ever day it was perhaps fitting that we broke a major story about a heated situation that saw an insurer end its professional indemnity cover for two law firms because of claims they were acting on.
QBE decided not to renew cover for U.K. law firms Fieldfisher and Mishcon de Reya after the firms attempted to build group claims to push for business interruption insurance payouts in the early stages of the pandemic in 2020.
The controversial move sounds alarm bells for the business of law more widely. If law firms can’t get PI cover they can’t trade so in theory the insurance industry could ward off threats of litigation by pulling cover for any legal advisers acting on claims. Law firms can always go elsewhere, but law firm leaders complain that the market is not very big.
Rival law firm leaders called the situation “pretty horrific” and a “slippery slope”. One added: “It wouldn’t surprise me if the [legal] industry started to look at setting up captive insurers or a mutualisation.”
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