Overview

Just outside of the top 100 UK law firms lie those practices eyeing the spots presently occupied. And with an exceptional year for the mid-market, the bigger players can’t afford to rest on their laurels. By Matt Byrne

First, some context. The total value of the 100 firms listed in this edition of The Lawyer Rising 50 – that is, The Rising 50 entrants themselves together with the next 50 best performers (which we are printing for the first time) – is £1.09bn. The total revenue at Clifford Chance for 2005-06 was £1.03bn.

Does that make these firms less interesting than the world’s largest? Hardly. Most of the 50 firms in The Rising 50 (which together have a total value of £677m) would slot straight in to The Lawyer UK 100 Annual Report on other key indicators, such as revenue per partner (RPP) or revenue per lawyer (RPL).

Take Rosenblatt Solicitors. The London corporate finance boutique may only have a turnover of £12m, but its RPP last year was £923,000 – well ahead of far larger firms such as Watson Farley & Williams (£907,000), DLA Piper (£798,000) and Lawrence Graham (£733,000). Ditto Scotland’s private client leader Turcan Connell, which posted an RPP of £911,000 last year.

In fact, a total of eight Rising 50 firms would feature in the top half of The UK 100 if based purely on RPP (including the commodity players Silverbeck Rymer and Golds, which posted market-busting RPP figures of £4.1m and £1.3m respectively), while only nine would fail to make the main list. The figures are purely a reflection of the quality of work that the firms in this turnover bracket are handling year-on-year.

A YEAR OF CHANGE

This is the third issue of The Lawyer Rising 50 and, in terms of the movement in the table, the most dynamic. There are 11 new entrants to the table. Five of these featured last year in the group of 25 firms that followed The Rising 50 firms, which we cannily called ‘The Next 25’. The five are Barlow Robbins, Birketts, Flint Bishop & Barnett, Matthew Arnold & Baldwin and Withy King.

Two firms, Langleys and Veale Wasbrough, are new entrants because last year The Lawyer was unable to unearth figures at the time.

The remaining four – ASB Law, Cripps Harries Hall, Hewitsons and Kendall Freeman – are firms that have dropped down from 2005’s UK 100.

So yes, although the publication is called The Rising 50, do not let that fool you. Not every firm is on a one-way growth path to the list of the top 100 UK firms.

Cripps saw a 16 per cent dip in total turnover, primarily due to the sale of its wealth management arm Cripps Portfolio in January 2006. However, while total turnover has fallen, fee income rose by 17 per cent from last year’s £14m to hit £16.35m.

Unlike their larger competitors in the top 100, firms in The Rising 50 are not asked for details of profit, although quite a number of them volunteer it. Cripps, one of the firms to disclose profits, saw average profit per equity partner (PEP) shoot up by more than 50 per cent, from £119,000 to £187,000, while net profit rose by 44 per cent, from £3.15m to £4.15m.

Managing partner Jonathan Denny predicts that the firm will rejoin The UK 100 at the 2007-08 financial year end. The firm’s profit margin is due to drop slightly from its present 28 per cent high point due to a number of hires yet to come on stream, but is likely to be in the mid-20s.

At ASB Law, senior partner Russell Bell admits that part of the reason for the firm's effective demotion was down to the departure of a number of lawyers. "There is volatility in the mid-market because parts of the business come to the fore," says Bell. "The partners in a stronger position feel held back and the partners in a weaker position feel a bit under the microscope. People are willing to move in a way that 10 years ago they weren’t."

For its part, Hewitsons not only dropped out of The UK 100 this year, but also came bottom of The Rising 50 RPP table, posting an average of just £333,000 for its 52 partners. Interestingly, the firm at the foot of the RPL table this year is Putsmans, currently moving towards a merger with the £8m Shakespeares.

This year the gap between the firm in the number one position, ASB, and 50th place, Lupton Fawcett, shrank by £250,000. The tightening of this group is the most tangible demonstration of how competitive this market is. The Rising 50 represents 50 firms with turnovers between £10.8m and £17.6m, a tiny difference of just £6.8m in a market worth £677m. In contrast, the gap between Clifford Chance and Ince & Co, the firm in 50th place in last year’s UK 100, was £980m.

Other statistics also reinforce how dynamic this market really is. The total value of the firms in this year’s Rising 50, £677m, is up by 8.5 per cent on 2004-05.

The entry level to The Rising 50 was up from £9.7m last year to £10.8m, a rise of 11 per cent, with the average size of firm up by 8 per cent to £13.5m.

Regionally, the South East was the main contributor to the total, with 12 firms chipping in £157.9m at an average of £13.2m each. London was the next largest, with 10 firms contributing £138.2m at £13.8m each. Taken together, these two groups account for £296.1m, or 44 per cent, of the £677m total.

The region with the lowest average-sized firm was East Anglia, which provided £42.4m of the total at an average of £14.1m and with the lowest regional RPP, at £377,700.

THE NEXT 50

This year, for the first time, we have also published the next 50 firms after The Rising 50 list (see page 25 for the full list). Add the £413m total revenue that these 50 firms generate to The Rising 50 firms’ £677m and together the 100 firms just pip Clifford Chance’s £1.03bn effort by £60m.

Consequently, this publication, when considered along with The Lawyer UK 100 Annual Report, represents the first time that detailed financial data on the UK’s top 200 firms has ever been published.

Another innovation is the revenue per fee-earner table, which takes account of the sometimes large numbers of unqualified feeearners many firm utilise to swell turnover. Look at Golds’ and Silverbeck Rymers’ numbers in particular to see how this figure, in conjunction with the RPP and RPL tables reflect a firm’s practice.

Although some of the firms are undoubtedly small in revenue terms, do not dismiss them. Some of the biggest risers this year have come from last year’s Next 25-ers.

Take East Midlands firm Flint Bishop & Barnett. It grew by 47 per cent last year from £8.8m, putting it squarely into The Rising 50 for the first time with £13m. The growth was all organic. Indeed, managing partner Ken Dixon says the firm has "shunned" several merger offers. Instead it plumped for a new office in Nottingham in March 2005 to cater for fee-earner growth. It has also restructured the equity so that a firm that five years ago had 15 equity partners now has just six out of a total of 22 partners.

"It has helped enormously being smaller," says the firm's managing partner Ken Dixon. "One of the problems for a lot of the larger firms is that they haven't had a clearout of the partners. Doing that, and having a team of senior people working full time on management, has allowed us to be really focused on developing the business."

East Anglia's Birketts is another impressive outfit that is also enjoying a good run of form. Its revenue was up by 37.5 per cent, from £8.8m to £12.1m. The increase was achieved partly by a series of hires, including a private client and agricultural team from Eversheds, which added around £1.3m to the top line.

Birketts' corporate team also scored a succession of significant deals that saw it beat budget by 10 per cent, contributing £2.1m out of the £12.1m total.

The biggest riser does not even make it into The Rising 50, but will do next year if it continues at the same rate as its growth in 2005-06. Conveyancing firm Barnetts grew its revenue by 75 per cent last year, adding £4m to last year’s £6m turnover. Its £10m turnover would have put the firm in the top 50 UK firms last year.

The firm attributes the growth to a growing list of high street bank and large financial institution clients, including NatWest and HBOS.

Barnetts also encourages young lawyers to actively go out and get business. The four partners are well supplied with more than 300 fee-earners who form an army of revenue growers.

"We understand about gearing," says chief executive Joe Whelan.

Whelan expects the firm to grow at a similar rate in the coming years, making Barnetts one to look out for near the top of the table in 2007.

Just ahead of Barnetts is Campbell Hooper, which last year made The Rising 50 in 36th place with £10.9m, but this year falls to 58th position with a revenue drop of £10.1m. The drop was partly a result of the firm's refocusing away from its traditional practices in media and music in favour of property and commercial work, resulting in a number of departures.

Property and urban regeneration is a major strategic objective and does appear to have begun to bear fruit. Six partners now specialise wholly in that field, with recent client wins including Countryside and David Wilson Homes. The firm also acts for a number of local authorities such as Brentwood and Reading. Campbell Hooper's development focus was underlined by the recruitment of former Pinsent Masons partner Peter Stockdale this autumn, whose clients include Berkeley Homes.

STAFF SHIFTS

TAs well as changes within the table, there has also been considerable movement within firms. At Collyer Bristow the firm lost chief executive Jonathan Fox in January this year to Birmingham barristers' set St Philips Chambers after five years at the Lincoln’s Inn firm.

As a result Collyer Bristow remodelled its management structure and appointed former business development director Jackie Reiss to the role of partnership director on 1 November 2006.

Next year the firm will be under new management. Collyer Bristow's senior partner of 10 years John Saner is stepping down to be replaced by the London firm's head of private client Roger Woolfe in February 2007.

Elsewhere, 2005-06 represented Chris Berry's first year as senior partner of Edwin Coe. Berry is only the firm’s fourth senior partner since it was founded by Edwin Henry Coe in 1913. Berry sees his job as marrying his firm's strong sense of tradition with plans to modernise and to convert Edwin Coe to limited-liability partnership (LLP) status by April 2007.

Other changes saw a corporate finance team that joined Davies Lavery from Cambridge firm Brachers Solicitors set up with Cripps Harries Hall lawyers to form Vertex. It is not all bad news for Davies Lavery, though, as the firm appears to have been very grown up about it and now enjoys a referral relationship with Vertex.

Davies Lavery senior partner Trevor Davies says the departure "showed the dangers of team bolt-ons". The firm has now rejigged its recruitment strategy to concentrate on cherry-picking key individuals or smaller groups.

Harvey Ingram managing partner Chris Finlay says the firm saw "plenty of opportunities" for growth in both Birmingham and Leicester during the year and would consider merger approaches on a case-by-case basis. Finlay says his firm, which already has a loose association with a firm in Vietnam, may also look to target more tie-ups with Asian-based practices.

Withy King made its first foray into the capital this year with the September opening of its Green Park office. Although it is more of a virtual office right now, managing partner Martin Powell has great plans for the London outpost.

The idea is for Withy King, now no longer just a South West firm, to compete with Osborne Clarke and Burges Salmon in private client work. "Given that many of the London firms have closed their private client teams, there’s a gap in the market," says Powell.

In bullish spirits, Powell is also open to acquiring other teams, or even merging with other firms. "I want to be a UK 100 firm in five years' time," he says. "That means getting revenue up to £20m or more, and we're not going to do that through organic growth alone.” Commercial services and personal injury teams will be focuses for the firm.

There was a particular coup for McClure Naismith in the shape of the February 2006 arrival of a two-partner commercial property team from Ledingham Chalmers, which arrived along with three lawyers and two support staff.

Senior partner Kenneth Chrystie is determined that McClure will maintain its own identity and culture and says the firm is not setting out on the merger trail. The partnership is also likely to remain roughly static, although the firm is recruiting at a lower level, including trainees, to maintain organic growth.

Shadbolt & Co was also in hiring mood. It lured project finance and PPP specialists Edward Marston and Andrew Walsh from Kilpatrick Stockton in November 2005, evidence of Shadbolt chair Liz Jenkins' ambition to raise the Reigateheadquartered firm's profile in the City.

Stevens & Bolton managing partner Richard Baxter says "no sensible firm" can currently rule out a merger within the sector and that his firm is not actively seeking a merger opportunity, but is hoping to get more mileage from organic growth, lateral hires (the firm recently hired from Allen & Overy, Ashurst, Denton Wilde Sapte and Simmons & Simmons) and by bolting on small specialist teams to existing departments.

Other changes included Barlow Robbins' conversion to LLP status at the end of its financial year, the timing of which matched its move to a new enlarged base in Woking. The conversion was designed to enhance Barlow Robbins' attractiveness to new recruits and to enable it to meet its growth target of 13 per cent year-on-year.

MERGERS [IMAGE RUSSEL BELL, ASB LAW}

Since last year there have been four major mergers announced involving firms in last year’s Rising 50. The highest profile deal was arguably Scottish heavyweight McGrigors’ audacious raid on oil and gas leader Ledingham Chalmers (The Lawyer, 23 January), which left the Aberdeen firm split in two. Last year Ledingham was secure in the top half of The Rising 50 with a £12.8m turnover. This year it has dropped out of the list, but is by no means out of the running.

The firm relaunched itself as a new 22-partner, 70 fee-earner limited liability partnership (LLP), still named Ledingham Chalmers. It still serves the oil services industry in Aberdeen, but has a sharper focus on a core of insurance litigation, the small and medium-sized enterprise market and the private client sector. As its managing partner David Laing puts it:
“We may not be large by national standards, but we’ll grow again.”

Staying in Scotland, last year’s 40th-placed firm Henderson Boyd Jackson completed its merger with Gateley Wareing in January 2006 after it was announced in October 2005.

The new firm, HBJ Gateley Wareing, proceeded to secure the 69th spot in The Lawyer UK 100 Annual Report, with a revenue of £31.5m and a PEP of £280,000.

In July The Lawyer revealed that South East firm Blake Lapthorn Linnell was negotiating a merger with 20- partner London outfit Tarlo Lyons. Meanwhile, October brought the news that Birmingham firms Putsmans and Shakespeares were to merge, creating a new £20m player in the Birmingham mid-market.

Although these deals suggest that The Rising 50 is a rich source of merger material for larger firms hunting for additional muscle, this is not necessarily the case. ASB Law senior partner Russell Bell argues that it is not always necessary to go as far as a full-blown merger.

“If there are areas where expanding the firm gives you access to more skills and more clients then we’d be interested in that,” he says. “The issue is how you manage that integration and get around the cultural differences. That can be a real problem.”

Then there are the firms for which the idea of a merger is anathema. Rosenblatt Solicitors is one such outfit. The corporate-focused firm reported a 20 per cent increase in revenue for 2005-06 and senior partner Ian Rosenblatt says he “would rather die” than see a merger involving his firm. “The thought of it makes me feels sick,” he added. Equally, the looming implementation of Sir David Clementi’s proposals contained in the Legal Services Bill does nothing for Rosenblatt. “We don’t need outside investment. We’re doing very well already,” he insists.

Indeed it is: the firm’s £923,100 revenue per partner was generated by a client base that includes Northern & Shell, Collins Stewart (it acted for the broker on its high-profile battle with James Middleweek and on its full listing) and the Sanctuary Group (which it advised on its recent reorganisation). As the ever-modest Rosenblatt puts it: “We’re a highly polished jewel of a law firm, sparkling a lot more than the duller competition.”

THE LEGAL SERVICES BILL

A recurring theme in interviews with managing partners of Rising 50 firms is what effect the pending Legal Services Bill is likely to have on their business.

Most are currently dismissing any possibility of attracting outside capital once regulations allow on the grounds that they are too small, although Withy King managing partner Martin Powell is in favour of outside investment in firms in the post-Clementi environment, and says a flotation is “not out of the question in a few years’ time”. Another managing partner, Thring Townsend’s Thomas Shepperd, says that a number of firms will be “going balls out” to get a float, although do not expect Shepperd’s to be one of them.

Equally, several insurance litigation-based firms may be well placed to become the legal arms of future acquisitive corporates in a year or two. What is certain is that several firms are already changing their look and feel in preparation for the changes that are likely to be implemented next year and which were announced in the Queen’s Speech on Wednesday 15 November.

Lupton Fawcett has changed its partnership structure radically during the year, moving from an equity partnership to a system of 30 directors. The £10.8m firm says it has altered its structure to prepare for the Clementi-related changes and would consider attracting investment from outside backers.

Clementi-related pressures have also led to a year of change at Leeds-based Ford & Warren, which with its £10.4m turnover just misses out on The Rising 50. As managing partner Keith Hearn puts it, the firm has begun to change its strategic direction and has been “working on developing relationship business”.

In other words, Ford & Warren, in common with many Rising 50 firms, has begun to move away from commodity work that is heavily price-dependent and started to focus much more on premium rate, relationship-driven work in its core areas of transport (road haulier Eddie Stobart is among the firm’s clients) and insurance.

The threat that firms such as Ford & Warren see in Clementi is that, once regulations allow, the major corporates that choose to may be better placed to offer these services, and firms in the £5m- £15m bracket or thereabouts may be less likely to be able to compete.

“We see this change as having a two-pronged effect,” says Hearn. “It means we need to focus particularly on relationship-driven work, but we also need to become ruthlessly efficient in the commodity work we do.”

More imminent for most of the firms in these pages is the possibility of seeking growth through a merger or a series of lateral hires or bolt-ons. For Southampton-based Moore & Blatch, the post-Clementi possibilities for outside investment “goes hand-in-hand with looking outside the firm for opportunities”, according to managing partner David Thompson. The firm did consider bulking up by taking on a smaller Southampton outfit during the year, but Thompson says “cultural differences” prevented the merger from taking place.

Generally, however, Moore & Blatch is “alive to the possibility” of a merger with a suitor that would complement rather than duplicate its business. That means strength in commercial property as well as corporate and commercial.

Coffin Mew & Clover managing partner Pauline Johnson says her firm has not ruled out the use of alternative business structures, a key part of the proposals, as a means of future expansion, but it is currently bolstering its ranks through both organic growth and lateral hires from the surrounding area and further afield.

END OF DAYS

This year it is not only about firms that have moved up or down. The past 12 months also saw the end of Milton Keynes’ Fennemores, an £11m firm with 16 partners last year that was set to dissolve this autumn after a succession of departures.

The embattled £11m-turnover firm was hit by a series of departures during the past year, beginning with the resignation of three partners in November 2005 to join emw law.

Another two partners and three lawyers followed in February 2006. The exits were followed by the departure of three partners and 23 assistant solicitors and paralegals, as well as 10 support staff, for rival Milton Keynes firm Geoffrey Leaver Solicitors.

The losses left Fennemores with just three partners, who will complete current residential property and personal injury matters for clients over the next two years.