There’s growth, but it ain’t organic

Catrin Griffiths

The financial year has ended, the bills are in, and results time is upon us. Fladgate was first out of the blocks with a good story to tell: its revenues were up 16 per cent and PEP up by a third. Other well-organised early reporters are Weightmans, where turnover is up by 6 per cent, and Charles Russell, up by 7 per cent.

Anecdotally, we’re hearing that there will be double-digit percentage increases in some quarters. Top-end transactional firms have flourished, as has any law firm with an investigations practice. However, while this all sounds rosy, some scepticism is in order. The Lawyer UK 200 last year showed that the average increase in revenues across the top 100 was 4.73 per cent. In the top 50 it was 5.16 per cent, with magic circle firms exhibiting much lower growth at 1.17 per cent. The only increase in organic revenues came from a handful of gold middle firms like Mishcon de Reya and RPC. This year it looks like there will be more of the same from the likes of Osborne Clarke, to take one example.

Even the most cursory glance at last year’s data will show that average revenue increase across the top 100 in 2012/13 was bolstered by mergers. Of the top ten firms with the biggest rises in turnover, nine of them had closed major mergers relative to their size. The group includes DWF, Burness Paull, Wedlake Bell and Herbert Smith Freehills. The logic of merger is now dominant in law firm thinking across the UK; look at TLT managing partner David Pester’s recent pronouncement that his firm is targeting £80m in revenue by 2017, a figure that represents a 60 per cent growth. Something tells me that it ain’t going to be organic.

In short, consolidation has so gripped the market that the overall figures of revenue increases are skewed. The overall demand for legal services outside of a crisis buy such as a takeover or investigation is not dramatically on the up. At our General Counsel Strategy Summit in Lisbon a week ago, we presented some early findings of our yearly In-house Attitudes Survey. (The full survey is available at the end of this month, so if you want to prebook your copy, email ed.tillotson@centaur.co.uk). Those who said their budget would grow accounted for 20 per cent of the 864 respondents; the percentage of those who said it would shrink was exactly
the same. For 41 per cent, spend would be static. The economy may be recovering but assumptions that there’ll be
a domestic upsurge in demand for legal services are wide of the mark.