LAWFUEL – The Legal Newswire – With international business markets booming at an unprecedented level, there has never been a better time to be a global law firm – especially if you bill in sterling.
With the opening sentence of last year’s Global 50 survey, Legal Business announced that UK firms – for so long used to playing catch-up with the best firms on Wall Street – were making up ground on their hyper-profitable rivals: ‘Slowly but surely the standard bearers of English law are making a comeback.’ For the second year running, PEP growth had averaged over 20% for the eight (nine if DLA Piper is included) UK firms in the Global 50 and the Magic Circle as a whole had grown at a faster rate in revenue terms than the leading New York firms.
This year, that comeback remains in full swing and, for the first time, some of the best-known US firms have been left looking like they have some catching up to do. For now, the centre of gravity for the Global 50 remains firmly in New York, but it’s shifting closer towards the Atlantic shore than ever before.
Aided considerably by the strength of the pound (see page 54), a sustained European M&A boom, the continued emergence of Asia (see page 53) and the phenomenal growth of London as a centre for capital markets, as well as stronger management, UK law firms are now operating with more momentum than anyone would have imagined possible two or three years ago. 2003/04 was a nadir, with profit margins across the Magic Circle at their lowest ebb, on average running at about 35%. By contrast, Wall Street firms operated on a margin ten or more percentage points higher.
Since then, however, profit margins have stalled in Manhattan as they have risen among UK firms. On this measure, Slaughter and May (at 51%) is now the second most profitable firm in the Global 50, behind Gibson, Dunn & Crutcher and alongside Skadden, Arps, Slate, Meagher & Flom, whilst Freshfields Bruckhaus Deringer (at 49%) is joint sixth, behind Sullivan & Cromwell and Simpson Thacher & Bartlett.
Magic Circle heads, such as Ted Burke at Freshfields, are confident that the strength of the UK‘s Global Elite is no mere blip but a sign of a new era of top-tier profitability among the best UK firms.
