UK: UK State Of Law

Last Updated: 30 October 2008

The following is an excerpt from the Vault Guide to the Top UK Law Firms, 2009 edition.
www.vault.co.uk

When life gives you subprime lending, make lemonade

It wasn't so long ago that mergers and acquisitions were the axes around which London's legal universe evolved. Indeed, elite UK law firms spent 2006 and the first half of 2007 basking in the radiance of record-breaking M&A activity. According to Thomson Financial, deals in 2007 tallied $4.5 trillion, up 24 per cent from 2006, itself a record year.

By midsummer 2007, however, the picture had changed dramatically. As the US credit crunch sent predictable reverberations throughout the international legal market, big corporate tie-ups became scarcer, and deal volume dropped. By January 2008, it was clear that markets were battling rough weather. Transactional activity fell, and deal value for worldwide acquisitions value plunged 24 per cent in the first quarter of 2008, compared to its standing a year earlier. Deal volume plunged as well, with M&A stalwarts like Clifford Chance even reporting a drop (from 98 transactions in the first quarter of 2007 to just 60 a year later). Naturally, certain firms felt the pain more than others, and those leveraged in structured finance were particularly hard hit. But even as the credit crunch took its toll on banks, the legal industry still managed to achieve growth and Magic Circle firms garnered the double-digit revenue growth seen before the crisis hit.

Nevertheless, many firms took the lesson, changing direction and strategy. As big-ticket deals, leveraged buyouts and private equity mandates withered in the wake of the subprime crisis, law's bigger players forayed into the still active middle-market. Other outfits found work rescuing suffering investment banks, as sovereign wealth funds came galloping to their rescue, couriering emergency cash. London litigation giant Herbert Smith, SJ Berwin and US-based Bingham McCutchen even geared up for bank-on-bank court fights. The Bear Stearns buyout, government orchestrated to prevent the investment bank's total collapse, also generated work for a number of US-based law firms. Many firms turned their profit aspirations to emerging markets, in the hopes that growth in these regions would mitigate slack business on the home front.

Credit-crunching the numbers

In the face of upheaval, UK firms managed to keep their trajectory, with the top firms scoring double-digit growth in both turnover and profits per equity partner. Despite its exposure to a floundering structured finance market, Clifford Chance posted 11 per cent growth in turnover and saw PEP increase by 13 per cent for the year 2007-2008. Other Magic Circle firms fared even better. Freshfields Bruckhaus Deringer's PEP surged by 39 per cent, crossing well over the £1 million threshold—and that wasn't just the result of tighter equity rolls, slashed in a 2006 restructuring. After all, the firm's turnover also jumped 19.5 per cent, shattering the £1 billion benchmark. Hovering just outside the Magic Circle, Herbert Smith recorded a PEP rise of 25 per cent, which catapulted the firm into a clique of seven UK firms that have surpassed the £1million PEP milestone (among them, Ashurst, Linklaters, Freshfields, Clifford Chance, Allen & Overy and Macfarlanes). Other firms posting significant revenue growth for 2007-2008 include Bird & Bird, CMS Cameron McKenna, Dundas & Wilson, Field Fisher Waterhouse, HBJ Gateley Wareing, Norton Rose, Stephenson Harwood and Veale Wasbrough. Meanwhile, as US firms published their 2007 results, it was clear the M&A boom had elevated the legal market there to new heights. Among top US firms with sizeable London contingents, Sullivan & Cromwell tallied an enviable $3.1 million in partner profits, with Simpson Thatcher & Bartlett coming in at $2.9 million. In terms of revenue, Skadden, Arps, Slate, Meagher & Flom led the field with $2.2 billion, while Latham & Watkins followed closely behind with a revenue figure of $2.01 billion.

Profitability aside, it is, of course, uncertain just how much the legal industry has cause to worry. US firms are more vulnerable to a potential economic downturn and, as UK firms continue to thrive post-crunch, industry observers suggest that City firms' broader exposure to emerging markets provides some protection, come balance sheet time. That said, US based firms have traditionally performed better through slumps, because of their wider spectrum of practice areas and access to the huge American market, a money pot that can more than make up for these firms' rather myopic geographical reach. In the end, law firms' revenue figures are not prompt reflections of current economic conditions, and it is simply too soon to gauge what effect roiling markets will have on the legal world.

Penny-pinching

The ships may be weathering the storm, but what about the crew? Challenging times have seen law firms cull their ranks, especially in the areas of real estate finance and structured finance. US firms wielded the biggest axes. The first high profile cuts occurred at New York's Cadwalader, Wickersham & Taft, which laid off 35 associates in January 2008 and six months later culled 96 more lawyers, including several in the London office. Other US firms that made cutbacks include Dechert and Wall Street's Thacher Proffitt & Wood. The UK market has not escaped unscathed. In November 2007, City firm Olswang nixed 10 from its real estate department, including five associates, and Clifford Chance laid off six associates in its structured finance division. Dickinson Dees cut 17 from its re-mortgage team, although the layoffs did not hit lawyers.

Redundancy consultations have also reportedly been underway at firms including Bevan Brittan, Howard Kennedy, McGrigors, Halliwells and TLT. Although layoffs have not been as widespread in the UK, the spate of job cuts in America has led to fear that more are in store for this side of the Atlantic.

UK firms have not been immune to pay pressures, either. In 2008, the salary increases of recent years were tempered, and in some cases, nonexistent. Herbert Smith cited the shaky business climate for its decision to forego pay bumps for newly qualifieds and other junior lawyers. Olswang announced that it would not hike salaries for NQs, but backtracked a month later (the increase was 2.4 per cent, below inflation). Allen & Overy surprised the market with a pay freeze for associates, while Magic Circle rivals Freshfields and Linklaters offered below-inflation hikes, a marked contrast to the sizeable increases they touted a year earlier. But other firms are taking advantage of the shift toward moderate pay rises and making up ground. Bird & Bird, for example, rolled out a 19 per cent pay boost in 2008 for first-year trainees, and increased salaries for newly qualified lawyers by 9 per cent.

Amid all the anxiety about stagnant salaries, however, it's worth noting that a 2008 survey by the Association of Graduate Recruiters found that trainee solicitors are the highest-paid graduates in the UK, beating investment bankers by more than a thousand pounds on average (median salary for starting trainees is £36,500, whereas I-banks pay graduates £35,000). As they gain in experience, however, lawyers fall behind bankers in pay. According to a Legal Week article citing research by The Route City wealth club, the average lawyer in the City pulls in £572,800 annually—not bad, you might think, unless you cast a green eye over the pay cheques of your banker friends, whose average pay exceeds £1 million.

Gloom, but not doom

Some firms still managed to close major transactions despite the gloomy market conditions. On the M&A scene, the mining industry is proving the largest source of billion-dollar deals in 2008. Chief among these is the proposed merger between two Australian mining giants: City firms Slaughter and May and Linklaters grabbed lead roles in BHP Billiton's $147 million bid for Rio Tinto Group. The bold consolidation move fuelled others, as aluminum producers bought into Rio Tinto to gain influence. The buy-ins by Alcoa and Aluminium Corporation of China generated instructions for UK powerhouses Clifford Chance and Macfarlanes, as well as New York outfits Wachtell, Lipton, Rosen & Katz and Cleary Gottlieb Steen & Hamilton. London lawyers are also getting a piece of the action in another of the year's biggest deals, InBev's proposed $52 billion grab for brewing rival Anheuser-Busch. The Belgian brewer tapped Sullivan & Cromwell for the effort, and Anheuser-Busch called on its regular counsel, M&A giant Skadden. Meanwhile, Magic Circle firms Allen & Overy, Clifford Chance and Linklaters have all stepped in for the financing.

Other headline-grabbing deals in the UK include the nationalisation of troubled mortgage lender Northern Rock, a process that pulled more than a dozen, fisticuffs-happy law firms into the fray. A number of City firms took on representation of various private sector bidders, including frontrunner Virgin Group, which was advised by Allen & Overy. Taking the bank to full nationalisation was Slaughter and May, as it helped the government put together a bid that met European Commission regulations. Other firms taking part in the feeding frenzy include Freshfields, which counselled Northern Rock, and Linklaters, which advised Northern Rock's executive chairman on the formation of the company's new board. Nabarro and White & Case took up cudgels for major Northern Rock shareholders fighting nationalisation.

Litigation nation

Litigation departments can find some (cold) comfort in the slack economy and the free flow of blame. In December 2007, British banking giant Barclays filed suit against Bear Stearns, alleging fraud, conspiracy and breach of fiduciary duty, and accusing the Wall Street bank of misrepresenting the performance of its hedge funds. Linklaters stepped up on behalf of Barclays, a longstanding client—which later prompted another longstanding client, JPMorgan (who bought Bear Stearns in March), to drop the firm from its list of preferred advisers. Other notable bank litigation included an Office of Fair Trading suit, filed against eight banks over allegedly unfair overdraft charges. Defendant banks included big guns Barclays, Lloyds TSB, HSBC and Royal Bank of Scotland—all of which pulled in an equally heavyweight roster of law firms, including Linklaters, Addleshaw Goddard, Slaughter and May, and Simmons & Simmons. In another high-profile case, DLA Piper and Herbert Smith squared off in a battle between British Sky Broadcasting and Electronic Data Systems; BSkyB sued EDS for some £400 million, claiming misrepresentation in the installation of a billing system.

The last year has also seen law firms' dirty laundry make it into the courtroom. In 2007, Freshfields won a £4.5 million age discrimination claim brought by a former partner, who took retirement when a change in the firm's pension scheme threatened to reduce his benefits. In a key test to new UK discrimination laws, the Central London Employment Tribunal found Freshfields' pension scheme to be "proportionate" and balanced. The suit was one of two brought by former partners who left under the pension overhaul. Meanwhile, Hammonds faces a courtroom tussle with former partners; the firm alleges that the defendants violated a partnership agreement by refusing to pay back anticipated profits. And considering the global context, it's not surprising that some firms also faced mortgage-related lawsuits. Eversheds fields the largest of the high-profile claims, a £20 million suit brought by building society Nationwide, deemed one of the largest against a major UK firm. In the High Court case, Nationwide argues that Eversheds gave negligent advice regarding an allegedly fraudulent deal for a £14.3 million loan for a building in Wales that was actually worth less than £1 million. In other malpractice claims, the Cheshire Building Society filed a £10 million claim against Cobbetts for an alleged overvaluation of property.

The world is our headquarters

London law firms are sticking more tacks on the world map, as emerging markets become the new focus for revenue growth. In greater numbers than their US rivals, UK firms are heading to Eastern Europe and the Middle East, and continuing to grow their presence in Asia. Norton Rose will launch its fourth office in the Middle East, which is currently experiencing a deals bonanza. Eversheds, Lawrence Graham and DLA Piper are also entering the region, and Freshfields is beefing up its presence. The strategy has already paid off for firms like Herbert Smith, which cites Dubai as a major contributor to its positive 2007-2008 results and will expand with an Abu Dhabi office. Thanks to recent launches in Qatar, Kuwait and Saudi Arabia, Denton Wilde Sapte now has eight offices and more than 100 lawyers in the region. US firms are getting in on the action as well; Latham & Watkins, for example, has plans for offices in Doha, Abu Dhabi, and Dubai.

Central and Eastern Europe continue to be viable targets for expansion-minded UK firms. CMS Cameron McKenna was one of the first UK law firms to set up shop in the region and, in March 2008, opened its doors in Kiev. Russia is particularly attractive, as the country's economic metamorphosis spurs a surge in corporate work. London's less restrictive investment market is attractive to Russian companies seeking capital and has been the host of choice for Russian IPOs. In a reverse migration, western companies riding the oil boom are also headed to Russia. Catering to these new needs, Simmons & Simmons launched a new Moscow office in November, and other major US and City firms are increasing staffing in the Russian capital as well as expanding across Eastern Europe and the Baltic states. Linklaters, conversely, made a somewhat perplexing move in 2008 by spinning off its offices in Budapest, Bucharest, Bratislava and Prague into a new law firm (while still claiming the offices were "highly successful").

Meanwhile, firms have been boosting their presence in Singapore, as the city-state opens up its domestic legal market to foreign firms. Outfits that had a presence in the country had been prevented from practising local law except via a joint venture with a Singaporean law firm. Newcomers to Asia include private client-focused Withers, which has launched a Hong Kong office. South America also beckons: Skadden has set up shop in São Paolo, following various New York firms as well as UK giants Clifford Chance and Linklaters who have established presences in Brazil.

As UK firms branch outward, foreign-based firms continue to unfurl their awnings in London. US litigation boutique Quinn Emanuel Urquhart Oliver & Hedges announced its designs on the City legal market with a raid on Kirkland & Ellis, which netted the firm a key litigation and restructuring partner. The Los Angeles-based firm specialises in litigation aimed at financial institutions, and intends to take advantage of the likelihood of credit crunch litigation, while capitalising on the Magic Circle's reluctance to take banks to court. Other debutantes to the London scene include Canada's Gowling Lafleur Henderson. The Ottawa-headquartered IP and IT giant launched a City office, its second abroad after Moscow, with a Clyde & Co poach. India's Fox Mandal Little has also unveiled aspirations for a London launch.

Practice, practice, practice makes perfect

Deal frenzy made corporate lawyers the hot commodities in recent years, but according to a 2008 Legal Week survey, 54 per cent of lawyers now claim litigators are equally valued. Clyde & Co, which has been growing its commercial litigation practice in London, tied its double-digit growth to a rebound in demand for litigation services. Mid-market firms report that litigation instructions are making up for downturns elsewhere. Although corporate law is still among the top practice areas, insolvency and restructuring are catching up. Indeed, statistics compiled by Freshfields point to a 54 per cent surge in UK companies going into administration during the first quarter of 2008. Smaller practice areas are also paying off big. Several City outfits are making a push for lucrative Islamic financing deals: Clifford Chance and Denton Wilde Sapte, for example, handled a $2.5 billion Islamic convertible bond, the first of its kind, whereas Allen & Overy represented underwriters on a $750 million Islamic bond. Practice areas least in demand, according to Legal Week's survey? Property and the once-hot capital markets.

Taking it to the public

As law firms seek new ways to raise capital, recent UK legislation is rapidly changing the landscape. Approved by Parliament in late 2007, the Legal Services Act will allow non-legal businesses to take stakes in law firms. As companies (ie, insurers) consider the acquisition of law firms, firms are themselves pondering initial public offerings. The prospect of law firms listing on a stock exchange became a reality in May 2007, when Australia's Slater & Gordon became the first law firm in the world to go public. The personal injury firm raised $29 million in its IPO. For UK firms, the notion of a public listing opens the possibility of raising capital for bolder expansion moves. Although Magic Circle firms will not show up on stock markets any time soon, small and mid-sized firms may find the new capital raising opportunities attractive. But even if UK firms do begin to list publicly, ownership by outsiders promises to open new questions about conflicts of interest.

Meanwhile, firms in England and Wales, where the law takes effect, will face new competition as non-law firms begin offering basic legal services. Personal injury powerhouse Irwin Mitchell has positioned itself to take advantage of the Act's provisions; already established as an advocate for the "man on the street" and at the forefront of commoditised legal services, the firm has now linked up with the Automobile Association and RAC to offer services such as wills.

Sartorial judgments

In May 2008, the lord chief justice appeared on Vogue's web site—yes, Vogue—donning the new standard-issue robes to be worn starting in October 2008. Designed by Betty Jackson, the new "Continental-style" black robes are an attempt to give judges a more modern look. Judges will also eschew the centuries-old practise of wearing wigs for civil and family proceedings. The wardrobe adjustments are more than just an effort to catch up to the times—they are also expected to save money. Eliminating a newly appointed judge's wig allowance, now at £2,595, will save the government £300,000 a year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.