Magic circle holds back tide of mergers – for now
14 July 2014 | By Katy Dowell
14 July 2014
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4 August 2014
As Top 10’s revenue doubles in a decade, consolidation is driving growth at firms outside magic circle
Collective revenue at the UK 200 Top 10 has more than doubled in a decade despite the biggest economic slump in 100 years.
Turnover for the Top 10, excluding the ever-secretive Slaughter and May, hit a total £10.643bn at the 2013/14 year-end thanks to global consolidation. That is up by 120 per cent on the £4.832bn recorded by the Top 10 at the 2004/05 year-end.
It will come as little surprise that at firms outside the magic circle – Clifford Chance, Linklaters, Freshfields Bruckhaus Deringer and Allen & Overy – growth has been driven by mergers and acquisitions.
Norton Rose Fulbright is the standout firm in the Top 10. Its turnover swelled by an enormous 449 per cent over the past 10 years, from £210m to £1.152bn at the latest year-end.
The transformative years were between 2009/10 and 2012/13. The November 2010 deal to join forces with Canadian firm Ogilvy Renault and South African outfit Deneys Reitz catapulted the firm into a different league. In that three-year period turnover grew by a huge 175 per cent from £307m to £845m.
The firm refused to stand still. In November 2012, two years after its move into Canada and South Africa, it sealed a merger with US outfit Fulbright & Jaworski.
And so it was that Norton Rose became Norton Rose Fulbright on 3 June 2013.
On the surface it appears that Fulbright has been great for Norton Rose, helping push up revenue by 36.3 per cent, from £845.3m in 2012/13 to £1.152bn a year later. But dig a little deeper and it can be seen that growth has been slow.
When the deal was announced the combined forces were expected to generate revenue of $1.9bn (£1.2bn), with Norton Rose turning over $1.32bn in 2011/12 and Fulbright’s 2011 income coming in at around $580m. At the latest year-end, the first to include US figures, the combined firm is still shy of that £1.2bn.
DLA Piper, the largest firm in the UK 200, has also been a strong grower over the past decade. Revenues between 2004/05 and 2013/14 jumped by 386 per cent, from £322m to £1.566bn.
For DLA the big transformation came between 2010/11 and 2011/12, after the firm formally merged with its Australian best friend DLA Phillips Fox. That year revenue rose by 131 per cent, from £604.9m to £1.4bn. DLA Piper has been the largest firm in revenue terms in
the UK 200 ever since.
At the latest year-end, growth has slowed somewhat, increasing by just 1.7 per cent, from £1.539bn to £1.566bn. And with average profit per equity partner (PEP) at £836,000 DLA Piper is eclipsed by the magic circle and only slightly ahead of Ashurst, where PEP stood at £801,000 at the end of 2013/14.
And what of the single firm outside the magic circle that looked to grow organically rather than going global? Eversheds has seen minimal growth compared to its Top 10 peers. Between 2004/05 and 2013/14 the firm has pushed up turnover by 26.8 per cent, from £302.8m
The firm has undergone its own style of transformation in recent years. Between 2008 and 2009 it cut 735 jobs over four redundancy rounds, with a further 116 redundancies announced in early 2013.
That said, Eversheds has clung on to its spot at the top of the legal market without having to look for a teammate. Whether it can continue alone is another matter.
Experts predict that global consolidation is not going to slow and magic circle firms will not be able to avoid it. The legal sector is entering a period of dramatic change and for many, the transformative years are only just beginning.