Magic circle sees UK market share shrink as global consolidation takes hold

The magic circle has seen its revenue market share of the UK top 10 firms contract by more than 15 per cent over the last decade as global consolidation takes hold of the sector.

While the collective revenue across the UK200 top 10 has defied the biggest economic slump in 100 years to double in size to more than £10bn over the past 10 years, Clifford Chance, Linklaters, Freshfields Bruckhaus Deringer and Allen & Overy have been left fighting for position.

Turnover for the top 10 firms, excluding Slaughter and May, which does not report financial data, hit £10.643bn at the end of the 2013/14 financial year. The magic circle accounted for £5.076bn of that, or 47.7 per cent.

This is a significant reduction on the 2004/05 year-end position, when the combined revenue for the UK200 top 10 was at £4.832bn. In that year the magic circle produced collective revenues of £3.165bn or 65 per cent of the top 10 total for the financial year (8 July 2014). 

The squeeze on the Big Four is coming from DLA Piper, Norton Rose Fulbright, Hogan Lovells, Herbert Smith Freehills and Ashurst, which have all looked for growth outside the UK since the economic slump of 2008/09.

The transatlantic merger between legacy Lovells and legacy Hogan & Hartson has proved to be a game-changer (8 October 2009), underlining a consolidation trail that has globalised the UK market.

Writing in The Lawyer last week Mark Brandon of Motive Legal predicted that this would be a trend that would also see more US firms move into the London market (7 July 2014) and half of the current magic circle merge.

“The US is the biggest market for legal services in the world and if you can’t offer world-class service there your days are numbered,” he forecast. “It is not an impossible ask, but you’d better get it right, and soon. I’ll see at least two of the four merged or fading into rosy irrelevance before I retire.”

At the 2013/14 year end the increased competition is coming from London-headquartered firms in the top 10.

DLA Piper and Norton Rose Fulbright have been the biggest growers of the last decade.

Turnover at Norton Rose Fulbright increased by 36.3 per cent from £845.3m to £1.152bn in its first financial year after merging with US firm Fulbright & Jaworski (8 July 2014).

It makes the firm the fastest growing in The Lawyer UK200 top 10 over the last decade. Revenue has rocketed by 449 per cent from £210m in 2004/05. It is yet to confirm average profit per equity partner figures.

DLA Piper has also had a transformative decade, becoming the largest UK-headquartered firm in the world by revenue in 2011/12 following its formal merger with Australian best friend DLA Phillips Fox (31 January 2011).

Over the 2013 calendar year turnover at DLA Piper grew by 1.7 per cent to £1.566bn, but since 2004/05 the firm has pushed up revenues by 386 per cent from £210m.

In the three-year period between 2009/10 and 2012/13 turnover at DLA Piper grew by 175 per cent from £307m to £845m. 

Norton Rose Fulbright moved into the big league at the end of 2011/12 following its mergers with Canadian firm Ogilvy Renault and South African firm Deneys Reitz (15 November 2010). At end of that financial year revenue increased by 68.5 per cent to £822.3m.

In November 2012, two years after its move into Canada and South Africa, the firm sealed a merger with Fulbright & Jaworski.

Norton Rose became Norton Rose Fulbright on 3 June 2013 (14 November 2012).

Outside the magic circle only one firm in the UK top 10 has maintained a spot without taking to the merger and acquisition route. Eversheds increased revenue by 2 per cent over the last 12 months from £376m to £384m (3 July 2014).

Over the last decade that figure compares with revenue growth of 26.8 per cent from £302.8m to £384m.

UK Top 10 – a decade in numbers
  Firm 2013/14 turnover (£m) Difference (%) 2004/05 turnover (£m)
1 DLA Piper 1566 386 322
2 Clifford Chance 1359 48.7 914
3 Linklaters 1255 55.9 805
4 Freshfields Bruckhaus Deringer 1232 57.9 780
5 Allen & Overy 1230 84.7 666
6 Norton Rose Fulbright 1152 449 210
7 Hogan Lovells 1070 192 366
8 Herbert Smith Freehills 800 202 265
9 Ashurst 586 192 201
10 Eversheds 384 26.8 302.8