Magic circle: doing the trick

International strategies pay off

magic circle chart

The magic circle showed a divided performance in the revenue tables for the 2011-12 financial year. Freshfields Bruckhaus Deringer and Linklaters both poste broadly flat turnovers, while Allen & Overy (A&O) and Clifford Chance saw ­single-figure rises.

The explanation for this seems clear: Freshfields and Linklaters are both highly exposed to the global downturn in M&A activity.

Linklaters’ corporate practice even dipped below its finance practice, a startling development, with global managing partner Simon Davies putting this down to the firm’s focus on financial restructuring. Even distressed M&A, once a golden source of fees for the firm that advised Lehman Brothers’ UK administrators, has not beenactive. This meant the Silk Street firm’s corporate practice brought in 39 per cent of turnover (£464.8m) with finance contributing 40 per cent (£484m).

The upturn in financial restructuring work and downturn in M&A cancelled each other out to give a roughly static turnover figure of £1.207bn, an increase of less than 1 per cent on last year’s £1.2bn.

Freshfields, meanwhile, turned over £1.139bn, roughly flat compared with the £1.14bn seen in 2010-11. Freshfields does not provide a breakdown by practice area, but its large corporate practice – 33 per cent of turnover for 2010-11 – suggests a ­similar situation to Linklaters. Chief executive and global managing partner Ted Burke highlights the “challenging market” but says the firm is consistent across practice areas and locations.

Ted Burke

“We have a significant presence in the eurozone, which saw a fair amount of turmoil,” Burke comments.

The international breakdown points to a different trend. Freshfields does not provide this, but Linklaters’ UK revenue was slightly up, from £510.4m in 2010-11 to £513.5m, with the proportion of overall revenue produced in London roughly static at 43 per cent. The Americas produced £88.2m, continental Europe £450.3m andAsia and the Middle East £154.7m.

Revenue order

Clifford Chance, meanwhile, has extended its lead at the top of the magic circle firms by revenue, with income rising 7 per cent. And its figures show something thatmarks it out from Linklaters: a much higher proportion of its revenue comes from abroad.

The most notable rise for the Canary Wharf firm is in the emerging world: the Asia-Pacific practice grew by 28 per cent in turnover terms to £185m, with global managing partner David Childs saying the firm is still on track to hit its £250m revenue target for the region by 2014. This is set against an increase in turnover in the UK of a comparatively low 3 per cent, with this now making up £443m – 34 per cent – of the global business. Continental Europe faired slightly better, withCliffordChance bringing in £492m, representing a 5 per cent increase.

The firm’s results – which come alongside a 7 per cent increase in average profit per equity partner (PEP) from £1.005m to £1.1m – point to some successful hedging against the downturn. Far from being focused on UK corporate work the firm has brought in business from across its broad network and in a range of practice areas.

Childs describes litigation and arbitration as a “star performer”, especially in the US, with the firm moving to bulk up a previously depleted disputes team stateside.

Not that Clifford Chance is settling for this: Childs says it aims to be as strong in corporate as it has traditionally been in finance, with management telling partners atthis year’s retreat in Barcelona to help boost corporate by leveraging the firm’s banking relationships.

A&O joins Clifford Chance as a magic circle firm associated with a desire to be present everywhere, rather than just in the major hubs, with A&O announcing openings in Casablanca and Istanbul in 2011 plus two office launches in Vietnam earlier this year.

Slaughter and May, which does not report its financial results, has rarely appeared weaker; The Lawyer estimates a single-figure turnover drop for 2011-12, with the firm incapable of bringing in the revenue levels enjoyed by more international rivals.

With A&O producing a 6 per cent turnover hike and Clifford Chance showing a growth of 7 per cent, the broad global approach appears to be paying off.

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